SEBI investigating 3656 cases of Corporate Fraud at Stock Exchanges!

SEBI Whole Time Director Mr T C Nair revealed a startling statistic at an ASSOCHAM Conference on Corporate Fraud held recently in New Delhi

He said that SEBI was investigating 3656 cases of Corporate Fraud at Stock Exchanges.In 2007 SEBI had received 169 corporate fraud complaints,most of which related to Market Manipulation

Let’s rationally take listings on Bombay Stock Exchange as the base.With  just under 8000 securities of just under 5000 companies listed on the Bombay Stock Exchange this would  comfortably mean (even after making some allowance for overlapping) that there is a complaint of corporate fraud on stock exchanges against every second company listed !…Also looking at 2007 it would mean a fresh complaint is received every second working day by SEBI !

Mr Nair also stated that most of the frauds were taking  place by exploiting the skills acquired from information and communication technologies and therefore SEBI was planning to set up a committee of IT experts to develop some mechanism to curb such frauds

Moreover SEBI will shortly issue a directive for mandatory annual audit of all transactions by the Stock Exchange  

With such a workload and such mounting pressures like these I think one should stop using the dubious acronym for SEBI…that is stop saying SEBI stands for “Systematic Elimination of Brokers and Investors” .It may have a good reason for going slow

Think about it ! If the Exchanges were to suspend or delist all suspected Companies for Frauds committed then SEBI would have no listed companies to regulate and shareholders would be stuck with shares of such companies ! ?

Am I serious !? …Well…..?

Mr Nair,what is stopping SEBI from putting up the List and a small complaint brief of the Listed Companies under Investigation on it’s website with a user friendly Search feature?  Is not SEBI’s prime objective that of Investor Awareness and Protection ?

The potential Investor and minority shareholder has a right to all sensitive information about the company….Remember IFSL a few years ago…this company was under SEBI investigation for fradulent and accomodation profits.It had declared spectacular quarterly results stating they came from it’s new Alternative Energy Business when actually they were purely accomodation entries of stock market profits which SEBI knew about.Many top Financial Institutions and Brokerage Houses recommended this Indore Company at Rs 30 and themselves purchased lakhs of shares…a leading FII picked up lakhs of shares even on the day when SEBI issued an order against IFSL after market hours…Why could SEBI not have warned Investors of IFSL when it issued a show cause notice to the Promoters ?…by not doing so SEBI is actually abetting Insider Trading !…IFSL for a long time has been now at Rs 1 or Rs 2 to which it fell like nine pins after the order and Promoters saying they will not appeal…lower circuits for several days and no exit route for those who had purchased the shares ,which I suspect were offloaded by promoters themselves,who got away fairly scotfree while Investors lost a packet.

I have mooted this strongly at all forums and workshops….SEBI please do something about it.In fact even the Stock Exchanges where the Company under SEBI Investigation is listed should put up this warning on their sites.Company Law and Listing Agreements should be tightened to make it mandatory for the Company to itself disclose in their Annual Report and on their website that it,and/or it’s promoters are under SEBI Investigation and specify the nature of this Investigation.   

Such disclosures,while under the investigation process itself,are simply Imperative towards  Investor Protection Measures…Mr Nair,SEBI’s Order,the IT Committee Formation to devise a mechanism to check such frauds can all come in due time…but first tell us who are under Investigation and why!