SEBI Report: Incomplete Investigation

After all the hullabaloo the government (read the Finance Minister, YashwantSinha) made last month about hanging the guilty in the stock market scam,the time has come for it to take the first step in acting on it. As askedfor by the government, the Securities and Exchange Board of India is righton schedule in submitting its preliminary investigation report to thegovernment before April 15.

Sources say that SEBI -- whose investigation wing is busy with giving thefinishing touches to the report -- is submitting the report to the financeministry on Friday, April 13. The report is expected to containdetails of the bear cartel operation and the nexus between companies (whoseshare prices were manipulated) and Ketan Parekh, among other findings. It isalso very likely to contain information about slush funds from theunderworld getting routed into the stock market (See From Dubai to DalalStreet).

SEBI's findings will present the government with enough revelations and posebefore the finance minister a tough challenge in taking action from its sideparticularly on the underworld-stock market connection where SEBI doesn'thave the necessary legal powers to act on.

Already, the Central Bureau of Investigation (with whom SEBI has beensharing investigation information) has leaked out information about SEBI finding definite funds movement from corporate biggies like HFCL and ZeeTelefilms and banks like Global Trust Bank to around eight KetanParekh-controlled brokerage firms. The amounts involved add up to a huge Rs2,000 crore and were used by Ketan Parekh to meet his settlement obligationsas well as to bail out his Kolkata associate-brokers and unofficial badlafinanciers who were facing major losses on account of steep fall in the K-10stocks.

SEBI's submission of its first official investigation report to thegovernment will set into motion not only the government's turn to act on itspromise of hanging the manipulators but its own action initiatives from itsexisting regulatory powers.

Interestingly, however, most of SEBI's findings in its report come from itsscrutiny of records (of the various intermediaries) which pertain to theperiod from January this year only. It has yet to go into the past (last oneor two years) records which many believe will contain much more shockingrevelations since the main rigging operation of Ketan Parekh took placebetween April 1999 and March 2000. 

That's another can of worms yet to openfor the government and something for SEBI to chew on!