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Sebi pins down KP, CSFB, Dresdner Kleinwort, Bang

Subhomoy Bhattacharjee & P Vaidyanathan Iyer

After the brouhaha created by its first interim report in April this year, the Securities and Exchange Board of India has now managed to conclusively establish market manipulation only in respect of Ketan Parekh, Credit Suisse First Boston, Dresdner Kleinwort Benson, First Global and Nirmal Bang.

It has, however, given a clean chit to many including Anand Rathi, Dina Mehta and Ajay Kayan.

The nine-volume report, which was submitted to the Joint Parliamentary Committee probing the stock market scam and runs into several thousand pages, has also said there was a clear case of price rigging by Ketan Parekh and his associate firms in case of Lupin Laboratories and that several Bombay Stock Exchange and National Stock Exchange members had manipulated prices of Amara Raja Batteries and Cyberspace Infosys.

The report has said the trading pattern of the Kayan group did not indicate any attempt to create an artificial price fall in the market post-Budget. Sebi has said it is still examining the trading details of JM Morgan Stanley.

Based on the Ernst & Young report, Sebi has also exonerated Anand Rathi by noting that the information obtained by him from BSE's surveillance department has not been used by the Rathi group for making profits or avoiding losses. Again, it said there was no evidence to establish that Dina Mehta or her firms had violated any rules of the BSE or Sebi.

The Sebi report has found that the entities associated with Parekh have prima-facie violated the takeover regulations in the scrips of Aftek Infosys, Global Trust Bank and Shonkh Technologies. Enquiry proceedings have been initiated for prima facie violations of Sebi regulations. The report has also established price manipulation in scrips of Aftek Infosys and GTB by KP entities.

According to the report, 23 entities associated with Parekh operated with a view to hide the nexus between the corporates and the ultimate users of these funds in the markets. The funds were received by the entities from banks as loans and overdrafts which were diverted to other entities to acquire shares.

Sebi has also said the total quantum of transactions during January-March 2001 between Shankar Sharma's First Global and Nirmal Bang's group stood at Rs 2 billion.

All these transactions were fictitious, it said. The investigations have also revealed that the entities connected with the Singhania, Khemani, Biyani and Poddar groups received large sums of funds from Parekh through his associate/controlled entities during April 1999 to March 2001.

Sebi has accused First Global of several irregularities including issuance of false contract notes for profit accommodation of certain clients which is tantamount to a serious violation of the code of conduct for stockbrokers.

It also said that First Global undertook portfolio management operations under the guise of arbitrage trading in violation of regulations.

About the Calcutta Stock Exchange payment crisis, the market regulator said the interest of common investors have not been adversely affected in most cases. It has also said that the problem could have been avoided if the exchange had taken cognisance of Sebi's directive to include the delivery position of the previous settlement of brokers in their permissible exposure limits in each payment cycle.

Sebi has not received any complaints from investors against non-receipt of payments for settlement numbers 148-150.

In case of BLB Ltd where allegations of short sales were made, the regulator has suggested that no action be taken at present. Enquiries were still in progress and a committee was examining the issue of the regulation of short sales.

Sebi's investigations of the Shailesh Shah group also did not indicate any serious violations and irregularities.

It might be recalled that the Sensex which stood at 4,271 on March 1 declined to 4,095 the next day and continued its downtrend thereafter and closed at 3,604 on March 30.

The report said that both Dresdner Kleinwort Benson and CSFB aided and abetted KP entities in creating artificial volumes in the K10 scrips.

In case of CSFB, shares were sold by the proprietary accounts and simultaneously KP entities bought them through pre-arranged deals. CSFB would purchase the same quantity of shares on the same day from the KP entities through cross deals for which payouts were made without waiting for the exchange mechanism.

Sebi has also said that transactions between KP and the overseas corporate bodies/sub-accounts were essentially in the nature of circular trading, temporary parking of shares with the OCBs and FII sub-accounts, building up of concentrated position and circumvention of Sebi takeover regulations.

On the basis of analysis of bank accounts of entities connected with KP at GTB, it was observed that funds had come from certain companies.

Many companies have claimed that the amount given by them to the KP entities were in the nature of inter-corporate deposits under the Companies Act. They also claimed that they have given some money to buy the shares of other companies.

It has, however, said the investment companies/ non-banking finance companies associated with Parekh are not under the direct regulatory purview of the regulator.

The report said investigations are underway in DSQ Software, Zee, Global Tele, HFCL, Aftek Infosys, GTB, Lupin, Shonkh Technologies, Padmini Tech, Ranbaxy, Silverline, Satyam Computers, SSI Ltd, Pentamedia and Adani Exports.

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