Every time when a financial fraud is exposed, the immediate follow-up stories are on its effect on the stock market and if there is an impact, then the furore is to save the shares from crashing further. In the recent Adani episode also the Supreme court while ordering a time-bound investigation—a two months time frame—the focus was on finding out the manipulation of stock prices (if any). It also constituted an expert committee to review the regulatory framework to protect Indian (share market) investors. Whereas the core of the Hindenburg report is round-tripping of money and holding more shares in the companies than permissible using shell companies.

SEBI was already soft-pedalling investigations on Adani on the issues which Hindenburg raised later and some other on the import of Indonesian coal and power generation equipment. With no persuasion from the Supreme court, SEBI may continue to dilly-dally the investigations. In fact, the Union government has said on record that SEBI is not taking Hindenburg allegations seriously. “No separate committee is constituted by SEBI to investigate allegations of Hindenburg Research”, said Finance minister of State Pankaj Chaudhary in the Loksabha.

What will SEBI find out at the end of the two months time frame is not clear, but it is definite that it will not include the truth of allegations about round-tripping of money or bogus companies operating from obscure corners of the world. The track record of SEBI too vouches for it.

The curious case of Himalayan yogi

The National stock exchange scam is the latest. A mysterious Himalayan yogi was said to be advising the chairperson of the world’s largest derivatives exchange, Mrs Chitra Ramakrishna. The stock exchange officials were alleged to be helping a particular broker in getting market information a bit earlier than others. It was made possible, allegedly, by allowing them to login early into the system. Famous financial journalist Sucheta Dalal broke the story. That was in 2015. Seven years have passed. And what is the status now?

The Securities and Appellate Tribunal in January has thrown out the SEBI’s investigation report. The 1000 crore fine with interest imposed on Chitra Ramakrishna and the gang is going down the drain. NSE may pay Rs 100 crore, not for fraud, but for not following the procedure. A scam that shook the country with all its absurdities is all set to die out.

The verdict accuses SEBI to be lenient towards the accused. Para 255 of the order reveals that even the investigation was not conducted by SEBI. SEBI asked NSE, the party whose bosses are alleged to have done the crime, to investigate. The order tears into the responsibility of SEBI further.  “We find SEBI has adopted a slow approach and in fact was placing a protective cover over NSE’s alleged misdeeds. It is only when questions were placed on the floor of the parliament that SEBI woke up and instituted an investigation”.

The Securities and Appellate Tribunal verdict has pointed out some absurd orders SEBI passed relating to the scam. Exactly opposite orders were passed in two different cases with the same premises. One is about the involvement of NSE which says “early login to the central servers did not give any broker an advantage”. And in another ruling about the broker who is alleged to be behind the scam, it says “early login did give the firm an advantage”.

And the most absurd part is that these two orders were passed on exactly the same date and by the same SEBI official. Nevertheless, no action was taken against the person responsible. Business goes as usual in SEBI.

The open and shut case

In the Satyam scam of 2009, chairman Ramalinga Raju confessed to manipulating the books of his company to hike the profits. It was a 9000 crore scam. But cases around it, especially the ones dealing with the punitive part, are still dragging, even after 14 years! Meanwhile, the SEBI orders on the case have been thrown out twice by the Securities and Appellate Tribunal. The last happened this February.

The tribunal pulled up SEBI for differential treatment of the accused as well. One lot was barred from doing share trade for 14 years and another for 7 years, while the crimes accused against both groups remained the same. SEBI failed to provide a satisfactory reason for the differential treatment. The calculation of losses incurred was also found erroneous. In the first report, losses were calculated as 1800 crore, which was discarded and then SEBI came up with a new figure of 813 crores. That too was disallowed. The Securities and Appellate tribunal has now asked SEBI to take a fresh look at the case altogether. Even in a case where the prime accused gave a confession, SEBI couldn’t close the case satisfactorily.

It is astonishing to imagine that all of this is happening to SEBI, one of the most powerful regulators in the finance world. It has an online real-time surveillance system and can even arrest people in the context of an investigation. But so far it is a flop show.

Every scam that shook the country is followed by setting up a committee to have a macro assessment of the issue. We have one in the Adani allegations as well. But what is the track record of similar committees so far?

In the infamous Harshad Mehta Scam of 1992, a special court was set up for speedy trials and a committee under Janaki Raman was formed for a wider investigation into the scam. Even now, after 30 years, the proceedings in the special court are far from over. As for the Janaki Raman committee, its report, even though very extensive and worthy, was never used by anyone. The CBI investigating the scam did not pick clues from it. The Joint Parliamentary Committee too ignored its findings. It practically went straight to the trash bin.

Then came the Ketan Parekh scam of 2001. A fraud of 40000 crores by some estimates. Modus operandi was almost similar to Harshad Mehta. So were the proceedings against it. A joint parliamentary committee was set up, which did nothing but gave vague instructions to SEBI to continue the investigation. As part of the investigation and retribution, promoters of the Adani Group were banned from stock markets, but later were let off on paying Rs 17 lakh in consent fees and other charges. The very next week, Adani Group filed a draft prospectus for the public issue of its company, Adani Power.

In the same year, the UTI scam happened. The Unit Trust of India was the first mutual fund in India and was run by the government. The dividends were manipulated to attract customers for some time, and finally, in 2001 it went out of control and was caught. A committee under Dr S S Tarapore was formed which unearthed the whole story. But the report never saw the daylight. All the top guns, including the UTI chairman escaped unscathed.

Even the conduction of enquiry by the committees is a dubious in-camera affair. The deliberations are never made public, even at a later stage. Given the track record of committee reports finding their place in some obscure corners of government offices, the committee proceedings ought to be made public. Let the people know what happened there. We deserve at least that.

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