Corporates, Regulators and Social Media

Sucheta Dalal 17 February 2016

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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