Pyramid Saimira Case Rolls On
How SEBI went soft on market manipulators of the Pyramid Saimira shares, while its actions destroyed the company
On 26th November, the Securities & Exchange Board of India (SEBI) announced an e-auction of the property of the controversial PS Saminathan, promoter of Pyramid Saimira Theatres Limited (PSTL), a publicly listed company. SEBI said that Mr Saminathan and his wife Uma had failed to pay up a penalty of over Rs1 crore leading to their property being attached and auctioned to recover the penalty, under SEBI’s newly acquired powers.
The PSTL case goes back to 2008, when a market operator named Nirmal Kotecha, who is or was the co-promoter of PSTL, had used a forged SEBI letter planted in the media to make significant and undue profits. SEBI launched an exciting investigation, where, for the first time, it used call origination data from cell-phone operators to trace those involved.
Among the many facts that emerged later was that the forged letter was an inside job by a SEBI manager colluding with Mr Kotecha. Moneylife’s persistent effort, followed by a question in parliament by Rajeev Chandrasekhar, brought this fact into the public domain. No action has been taken against the manager, who, when last heard of, was merely suspended pending inquiry. A journalist from The Economic Times, Rajesh Unnikrishnan, who was close to Nirmal Kotecha and had helped plant the story in two newspapers, was named in the SEBI investigation. So were Viral Doshi, Nirmal Kotecha’s wife, and other members of his family whose bank accounts were used to route payments.
A couple of years ago, Mr Kotecha sought a meeting with me and came to Moneylife office. I had assumed that his purpose was to tell me his side of the story and claim that he was wrongly targeted. To my surprise, he wasn’t even particularly interested in discussing the investigation. Typically, having banned 200-odd entities through an interim order, SEBI’s investigations continued at a leisurely pace.
SEBI, finally, completed investigation against five key entities connected with Mr Kotecha only in January 2014; of these, four others, including two of Mr Kotecha’s companies, were released from the bar on trading; some others had been let off much earlier. SEBI also ‘initiated proceedings’ against Nirmal Kotecha; but it would probably be safe to say that he is unlikely to be punished or absolved anytime soon.
However, Mr Kotecha’s wife, Viral Doshi, decided to contest the indefinite bar on her capital market activities. She approached the securities appellate tribunal (SAT) asking it to direct SEBI to pass final orders in her case. In early March 2014, SAT asked SEBI to decide in 45 days; the regulator sprang into action less than a month later and lifted the ban on Viral Doshi. SEBI’s order said that, although she was guilty of aiding and abetting her husband’s fraudulent activities, her debarment for four years was punishment enough. This argument has been used to let off most of the Kotecha group companies.
Meanwhile, look at what happened to PS Saminathan and PSTL, which, at one time, employed thousands of persons and had operations in six countries. PSTL’s management has been accused of dubious accounting, false corporate announcements and allotment of warrants to the promoter Mr Saminathan, without payment.
Clearly, this was a fit case to force a change in management under the Companies Act rather than shut down a listed company, hurting the interests of investors and employees. Curiously, however, SEBI and the Supreme Court seemed to prefer a shutdown.
While holding no brief for anyone accused of market manipulation, the PSTL case seems bizarre, when you consider that the Anil Ambani group got away with paying Rs50 crore, no admission of guilt and a very opaque consent order, after being caught channelling over Rs1,000 crore into Indian stocks by routing it via Mauritius-based Pluri Emerging Companies Cell E.
In fact, the UK regulator imposed stiffer fines and penalties on those involved, including a fund manager called Sachin Karpe, than our regulator. But even that didn’t embarrass SEBI which maintained a stoic silence. The very same investigators who handled PSTL had also gone overseas to investigate the Anil Ambani group’s transactions. As an investor standing on the sidelines and watching the investigation and disciplinary processes of India’s market regulator, does it inspire confidence?
Vaibhav Dhoka
7 years ago
SEBIs registration is licence to do illegal things,as there is no fear of police action or otherwise.Yesterday another regulator RBI governor spoke of NPA,none of corp orates and bosses are ever prosecuted but to recover losses now they are increasing ATM charges,the result ordinary public has to bear the brunt.
7 years ago
Unless the laws are amended to make pay offs possible by the collective company, loyalty, and the resulting advantage, will lie with the individuals who make the pay offs. So it is that equity shareholders and investors in other such ponsi schemes (the Unit Trust of India leaps to mind)bear the losses in law less India.
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