Stock Manipulation
Stock manipulation: Novagold Petro-Resources

Novagold Petro-Resources shot up by 691% between February 2015 and February 2016

 

Novagold Petro-Resources Ltd (NPRL) trades in shares and provides other financial services, according to its annual report of 2015. NPRL was earlier known as Osian LPG Bottling. As the name suggests, it was engaged in the business of bottling LPG. In January 2008, NPRL decided to venture into other business activities. This micro-cap stock reported revenues of Rs1.03 crore for the year ended December 2015, compared to revenues of Rs23 lakh in the previous year. NPRL reported a humungous net loss of Rs5.84 crore for the year ended September 2015 compared to a loss of Rs22 lakh for the year ended September 2014. The terrible financials have not deterred market manipulators from rigging up its stock. It shot 691% in just about a year—from Rs0.34 on 11 February 2015 to Rs2.69 on 3 February 2016. On most days, the trading volume remained under Rs1,000 per day. However, trading volume increased between March 2015 and August 2015, averaging a trading turnover of Rs3,000 per day. The stock price consistently moved up 3%-4% on each trading day. NPRL has just about 2,000-odd shareholders. In February 2011, the Securities and Exchange Board of India imposed a penalty of Rs1 lakh on NPRL for submitting incorrect information on shareholding pattern for the quarter ended December 2004. However, the regulator seems oblivious to the rampant price-rigging in NPRL.

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Corporates, Regulators and Social Media

Regulators can benefit from positive engagement with informed bloggers on corporate shenanigans

 
Until the first insider-trading regulations were introduced in 1992, almost anyone who traded on the Indian stock exchanges believed he had a nugget of inside information that was unknown to the public at large. Since then, although market manipulation has remained rampant as ever, the Securities and Exchange Board of India (SEBI) has tinkered with insider-trading regulations every few years, to the point of absurdity. The latest rules make a set of people, defined as ‘insiders’ culpable, even if the recipient of information has neither acted on it nor profited from it. Despite the hard work at tightening rules and to catch those involved in money laundering through the brazen manipulation of unfancied stocks continues—which we document in every issue.
 
Given this state of lawlessness, SEBI’s insider-trading action in Palred Technologies is a much-needed warning signal to manipulators who thought the watchdog would never sniff around their facebook friends’ list, or twitter and Whatsapp groups. SEBI’s action in February 2016 revealed that insiders are leaving enough of a trail to be nailed. It has ordered the impounding of unlawful gains of over Rs2 crore from 15 individuals including chairman and managing director Palme Srikanth Reddy and other family members. Although Palred is a little-known company, the stock attracted a lot of attention because it was a listed e-commerce company, fancied by well-known investors with a loyal following on social media.
 
While SEBI has done well in this case, we would also like to see some action by the regulator to protect those who supplement its work by putting out detailed, almost forensic, analysis of powerful companies and market intermediaries.  Since companies are able to control mainstream media through advertisements and sponsorships, social media and blogs were seen as levellers that allowed individuals to get a public voice. However, unscrupulous companies are actively using defamation, especially criminal defamation, as a tool to suppress such voices.
 
A highly respected academic told us about how the police landed at his doorstep to arrest him on charges of criminal defamation when he posted a detailed analysis about a much-fancied education company which is now in the doldrums. Threatening calls and other harassment followed, leaving him and his family in a state of panic. Most often, a single such experience turns into a long and expensive nightmare, in the absence of any support from the regulator. Instead of interacting with such analysts who can act as its eyes and ears—much like police informants—all Indian regulators prefer to operate out of ivory towers, cut off from investors, depositors and customers who are their largest stakeholders. Is it any wonder that public confidence in regulation is at such a low? 

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