In your interest.
Online Personal Finance Magazine
No beating about the bush.
Ketan Parekh is trading in dozens of stocks, according monthly intelligence reports. Top ministry officials have been getting these reports regularly. But why are they sitting idly, and why is SEBI keeping mum?
Ketan Parekh has been banned from trading in securities from December 2003 till 2017, but by all accounts Mr Parekh has been very active in the market all these years.
Most amazingly, the government's own intelligence wing is regularly tracking his trades and sending the reports to senior-most government officials. These reports are drawn up every month and sent to SS Menon, national security advisor; TKA Nair, principal secretary to the prime minister; KM Chandrashekhar, cabinet secretary; GK Pillai, secretary, ministry of home affairs; and Ashok Chawla, secretary, finance ministry.
Strangely, there has been no regulatory action against Mr Parekh so far, even after his involvement has been widely reported by the media. This raises the question, why top officials of this country who have enormous powers to investigate and harass small businesses and even tax-payers who are senior citizens, are so benign about Mr Parekh's illegal trading even when they are being briefed every month about his enormous purchases and sales?
Another equally important question is whether the market regulator, Securities and Exchange Board of India (SEBI) knows about these activities? Moneylife asked SEBI whether it has been briefed about Mr Parekh's activities, but has not received any reply so far. It would be stunning indeed if all the top officials and the regulator maintain a don't-hear-evil-don't-see-evil attitude, even as they sermonise about what is ethical and moral on various issues in the securities market.
We learn from Intelligence Bureau sources that their monthly briefing reports routinely reach the regulators in some form. The intelligence reports a few months ago documented that "using various front entities" Mr Parekh was active in Orchid Chemicals, GMR Infrastructure, Cairn India, Deccan Chronicle, Reliance Industries, Punj Lloyd, India Bulls Real Estate, Pipavav Shipyard, MVL, Amtek Auto, Hindustan Oil Exploration Company, Camson Biotechnologies, Crew Bos Products, UCO Bank, East India Hotels, State Bank of India, OCL India, Kemrock Industries, Tatia Global Ventures and JSW Steel. Further, KP has apparently "sold his holdings in HPCL and BPCL" in August.
Interestingly, Mr Parekh was also supposedly active in SKS Microfinance, "having taken up the share price from Rs850 to around Rs1,100." The report also adds that "KP using his Kolkata-based associate, Ashok Poddar, held a big position (5-6 lakh shares) in Parsvanath Developers. The report also informs the top government officials that "associates of Mr Parekh, such as Dinesh Singhania and Raj Aggarwal, contemplated modalities for IPOs, wherein cartel members would secure 50% of IPO proceeds from promoters of unknown or fringe companies. In this context, the IPO of Aster Silicates was discussed." Apparently, Mr Parekh is using a Chennai-based broking firm, Shri Ram Insight Share Brokers for his trading.
According to the reports, associates of Mr Parekh were involved in manipulating the Microsec IPO, both in its pre- and post-listing stages. "The gameplan included pre-listing short selling at Rs36 in the grey market, multiple retail and HNI applications through proxies, benami demat accounts and instant selling of the allotment on the day of listing to keep the price below Rs34 levels. Anticipating panic-selling by regular shareholders, the cartel members proposed to mop up shares and subsequently orchestrate a sustained hike through circular trading. Further, the cartel was also involved in the IPO grey market relating to Eros International Media, VA Tech Wabag and Carrier Point Infosystems."
A few months ago, Mr Parekh also planned to buy 60 million shares of Amtek Auto, alternately on the National Stock Exchange and the Bombay Stock Exchange. In June, the intelligence sleuths found Mr Parekh active on the counters of Dish TV, Piramal Healthcare, Pipavav Shipyard and Housing Development Finance Corporation.
Interestingly, Mr Parekh and his associates "were involved in market operations to raise funds in Temptation Foods. The plan included a cash transfer of Rs3.5 crore from one associate (DS) to another (GM) in return for which, GM was to issue a cheque worth one crore to Temptation Foods as application money for 14 lakh shares. While the normal preferential allotment of 14 lakh shares was to be at Rs36 per share, these were to be given at Rs30 per share to GM. Subsequently, KP and associates planned to hike up the shares of Temptation Foods, with the understanding that they would receive 50% of the profit. In the event of a loss, the promoter was expected to make good the losses by providing cash to GM through DS."
It may be recalled that Vinit Kumar, the present owner of Temptation Foods, was recently identified as being an ally of home ministry official Ravi Inder Singh, who was arrested for leaking out sensitive information to companies, and which also led to further revelations in the telecom scam. Vinit Kumar is said to have played a big role in the scandal. According to a report in the Mumbai Mirror, Mr Kumar was the go-between who would take information from Mr Singh to corporate houses, and in return give him cash and supply him with prostitutes. He is widely suspected to have strong links with Mr Parekh, the Mumbai Mirror report says.
When the Intelligence Bureau reports about Mr Parekh's activities are so detailed, the regulator's inability to check his market manipulation can only be deliberate. - Additional research by Sanket Dhanorkar
Finding stock broker Deepak Jhunjhunwala guilty of indulging in price rigging and manipulation in Twenty First Century (India), market regulator bars him from taking up any new assignment for a month; will not clarify what this means
In an unusual order against a stock broker, the Securities and Exchange Board of India (SEBI) has banned broker Deepak Jhunjhunwala from taking up "any new assignment" for a period of one month for indulging in price rigging and manipulation of shares of Twenty First Century (India) Limited (TFC).
The SEBI investigation has found that Mr Jhunjhunwala had indulged in various cross-deals while trading for his clients, which created artificial volume and price rise in the scrip of TFC. However, the market regulator has failed to clarify the meaning of "new assignment" in its order. After all, Jhunjhunwala seems to run a brokerage business and does not appear to be an employer or a consultant.
Normally, a broker found guilty of stock price manipulation and other such unfair trade practices is banned from undertaking any trading activity for a certain period of time. However, this order to abstain from undertaking any new assignment is a rare and confusing call from the regulator. Moneylife sent an email query to SEBI seeking clarification on the matter, but received no reply till the time of writing.
SEBI conducted investigations regarding buying, selling and dealing in the shares of TFC from November 2001 to April 2002. SEBI investigations revealed that there was a significant rise in both the price and volume of the scrip of TFC during this period. It was trading at Rs2.50 in November 2001 and went up to Rs53 on 12 January 2002, a massive jump of about 2000% in two months! Subsequently, the price came down to Rs3.50 on 30 April 2002. SEBI found that the rise in price of the stock was not supported by any improvement in the fundamentals or any corporate action by TFC.
The investigation further revealed that the trading was concentrated between top 10 brokers who had the scrip. Data provided by CSE, revealed that the trades were structured in nature and the brokers trading in the scrip were engaged in cross-deals for their clients. These cross-deals were about 90% to 97% of the total trades entered by these brokers, among them Deepak Jhunjhunwala.
Based on these findings, SEBI initiated inquiry proceedings against Deepak Jhunjunwala under regulation 5(1) of the inquiry regulations, through an order on 11 March 2008. The inquiry officer submitted his report recommending a prohibition to take up any new assignment for a period of one month to Mr Jhunjhunwala for violating the provisions of regulation 4(a) and (d) of SEBI (Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities Market) Regulations, 1995. The broker apparently admitted to having encouraged the sale and purchase of securities with the object of generating brokerage.
Looking at the facts and circumstances of the case, SEBI found that "Mr Jhunjhunwala had dealt in the scrip of TFC in a manner detrimental to interest of investors. Such acts may threaten the market integrity and orderly development of the market and call for regulatory intervention to protect the interest of investors."
The stock market regulator is working on a new concept based on the UID, which is being issued to 60 crore ‘poor’ Indians. This new proposal is somewhat surprising, as not so long ago the SEBI chief was lecturing mutual funds not to target the poor
Nandan Nilekani, the head of the Unique Identification Authority of India (UIDAI), has continuously maintained that obtaining the biometrics-based unique identification (UID) would be voluntary for Indians. This promise of 'voluntary enrolment' silenced most privacy advocates who argued that UID is a serious breach of privacy and that the biometric databases are unsafe.
Now it seems that the UIDAI may be trying some backdoor methods to make the identification registration mandatory. At the weekend, Securities and Exchange Board of India (SEBI) chief CB Bhave said in a speech that the market regulator is working on a new concept of operations based on the unique identification number (UIDN). UIDN, or Aadhaar, is the ambitious project of the UIDAI which, it is estimated, will cost the public exchequer about Rs45,000 crore over five years.
But this is not the first time that SEBI has tried to enforce some identification for investors. The market regulator discontinued it's much-touted 'market participant identification number' (MAPIN) scheme in June-July 2005 after a six-member committee, appointed to re-examine the use, structure and feasibility of the MAPIN database-bowing to popular opinion-recommended an end to biometric identification for investors. Mr Bhave was then heading the National Securities Depository Ltd (NSDL) and was one of the members who left the committee before it could draft and submit a report. Mr Bhave was a big supporter of MAPIN and NSDL would have been a big beneficiary.
MAPIN registered fingerprints along with a photograph. Many retail investors believed that the use of fingerprints and photographs (used worldwide for identification of criminals) would be a punishment for honest investors, as no trickster would be so stupid as to undertake fraudulent transactions on his own ID. The other factor was that actual trading, at the time, did not involve biometrics and there was no way of verifying the fingerprints and photograph of an investor.
Besides, there were other avenues like depository accounts, brokers, permanent account number (PAN) and bank account numbers, available to the regulators to track an investor and his investments.
In the first round of MAPIN, the stock market regulator issued about 4,00,000 UIDs, mostly to senior officials of various companies, institutions and brokerages, at a charge of Rs300 per ID.
Today, it's the same story with Aadhaar, or UIDN, which is to be issued to about 60 crore residents in India. Everyone, whether it is Nandan Nilekani or even the prime minister, believe that this will help improve the public distribution system (PDS) and that the UID will help to ensure that the poor would be able to receive food grain, which otherwise gets diverted in transit from government warehouses to PDS shops. (Read: http://www.moneylife.in/article/78/8567.html). This would mean that the poor would be given the Aadhaar number in order to get regular food and other social security benefits. Now if, as Mr Nilekani says, Aadhaar is not mandatory, about half of the country's population would be left out of the UID process. (Read: UID = more 'consumers', admits Nilekani http://www.moneylife.in/article/78/11574.html)
But SEBI wants to work out a solution based on the UID, so that the poor can also turn retail participant in the markets. Indeed, a noble idea. Unfortunately, the SEBI chief doesn't really believe so.
In June, addressing a mutual fund summit, Mr Bhave said, "Financial inclusion is a noble goal and everyone should be working towards achieving it, but one must keep in mind the target customer. A person whose lifetime savings is a mere Rs50,000 can't afford to invest in mutual funds. If the market crashes tomorrow, he cannot take that kind of risk. You will only give him what the net asset value (NAV) is at that particular time."
What applies to mutual funds must also be true for the stock market. Still, the SEBI chief is proposing to use the UID database, expecting the 'poor' to turn investors.
According to an activist, Aadhaar is a blind endorsement of Professor Coimbatore Krishnarao (CK) Prahalad's 'Theory of Marketing to the Bottom of the Pyramid', which in India's case is 60 crore people living below the poverty line; would-be consumers who corporations wish to target in order to improve their bottom line. "It's an idea in conflict, because the target population for this mega-marketing adventure are consumers who cannot afford three square meals a day, let alone avail of goods and services aimed at them by corporations," the activist said.