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Harshad-Videocon rigging role bared

K Giriprakash

The Securities and Exchange Board of India probe report reveals that Big Bull Harshad Mehta used a different strategy for each of the corporate houses named by the regulator for manipulation.

In the case of Videocon, according to the Sebi report, the promoters of the company, with the help of Mehta, built up large positions in the Videocon share to rig its price, and later provided an exit route when the artificial increase in the price was not sustained.

"It can be concluded that the promoters/company first connived with Harshad Mehta to build up large positions in the shares of Videocon, which facilitated market manipulations and later provided an exit route when the artificial increase in price was not sustained and some of the brokers dealing for Damayanti Group got trapped," the Sebi report said.

A Sebi confidential report on market manipulations had revealed that Harshad Mehta used the Damayanti Group of companies as a front for manipulating the stock prices of select corporates. In a major crackdown on the nexus between corporates and stock brokers, the Sebi had debarred Harshad Mehta for life from dealing in securities and also debarred Videocon International from accessing the capital market for three years. The other companies debarred from accessing the capital market were BPL for four years and Sterlite Industries for two years.

A detailed questionnaire on the Sebi report mailed to Videocon by Business Standard last week did not elicit any response. When contacted in Aurangabad on Monday, Venugopal Dhoot, chairman and managing director, Videocon International, refused to comment on the issue.

The Sebi report said the purchases of Videocon shares from the selected brokers who were dealing mainly on behalf of Damayanti Group through a complex web of entities controlled by the Videocon group should be viewed in light of the fact that the promoters of the Videocon group were involved with the Damayanti Group which was a front for Harshad Mehta in manipulation of the prices of the scrip.

"There is no plausible explanation as to why the Videocon group, a limited company who is responsible to its shareholders should buy shares only of Videocon at Rs 111.60 when the market was falling and there were only one-side sellers and no genuine buyers," the report said.

The report said the promoters also indulged in benchmarking of the prices of Videocon share through public announcements to make creeping acquisition at higher than the prevailing market price.

"Not only promoters made an offer of Rs 165 per share when the market price was around Rs 62, they also announced that they shall continue to acquire for subsequent years at this rate or at a market rate if it was higher than the offer price of Rs 165 for the next four years. This was a signal to the market that promoters were pegging the price of Videocon shares at a minimum price of Rs 165," the report said.

The report said on April 9, 1998, the promoters of Videocon announced that they would acquire 2 per cent of its equity by making an open offer at a price of Rs 140 per share when the prevailing market price of the scrip was only Rs 62. Thereafter on May 25, 1998 the promoters revised the offer price to Rs 165 per share.

Investigations also revealed that the Videocon group had also made funds available to certain brokers of the Bombay Stock Exchange and the National Stock Exchange who were dealing in the Videocon scrip on behalf of Damayanti Group acting as a front for Harshad Mehta.

"The funds were routed from Videocon International and placed at the disposal of the BSE and NSE brokers through a myriad of transactions through several bank accounts at Federal Bank, Fort Branch, Bombay," the report said.

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