Should SEBI be dismantled since they never catch ‘an offender’ at the right time?

Sebi is one of India’s leading organizations, and its priority is to protect investors’ investments. Even though Sebi has been present in the country for the past 35 years still, many stock market-related scams continue to occur. Harshad Metha’s scam in 1992, Ketan Parekh’s scam in 2001, Satyam’s scam up to the recent Vijay Mallya scam, Neerav Modi’s scam, and Lalit Modi’s scam all these are major shares and stock market scams in the country.

With full authority and powers to control stock markets, the Securities and Exchange Board of India (Sebi) must provide safety and security to investors who invest their hard-earned money in stocks and shares, but the SEBI is always on the lookout for scammers after they have lost investors’ money. Sebi is always catching fraudsters after they have committed a scam or fraud and lost a large sum of money, but why can’t Sebi catch scammers at the start of the scam?

SEBI, a government organization, caught all of these frauds in the Adani case after receiving a report from the Hindurberg Organization, a private organization in the US. It is Sebi’s responsibility to protect investors’ investments, but Sebi knows fraudsters after any private organization publishes reports on that fraud, so in India, Sebi is working seriously, or we need Sebi as a government organization now, which is a questionable thing.

After discovering that Vijay Mallya, Nirav Modi, and Lalit Modi were scammers, the government has not collected their passports. And they all flee the country to avoid further legal repercussions and run from investors who invest their hard-earned money; now investors must suffer the loss of their money in the same manner after understanding the Adani fraud, whether the government collects their passports or Adani flees the country after committing the fraud and causing losses to investors.

Even the opposition requests a detailed investigation from Sebi into Adani’s fraud activity, but we know all about it from private investigative agencies, so why did Sebi know about it at the start of the fraud, and why do small investors always lose money?

The stock manipulation and fraud of Adani Group have been carefully probed by Hindenburg Research Company, an impartial organization. Why is it then so difficult for SEBI to handle this issue when there is a large department here in India called SEBI that has too many employees working for the greater good and paying too much in salaries?

SEBI should be disbanded if it cannot perform its duties and does not achieve its goals. Controlling and observing the operations of the securities market, including those of stock exchanges, brokers, merchant bankers, and other intermediaries, is SEBI’s main duty. In addition, SEBI ensures the securities market runs smoothly and promotes transparency and fairness in the industry. While keeping the public’s interests in mind, SEBI should conduct a comprehensive investigation into the Adani matter.

However, amid this expansion, protecting investors’ interests is critical because, in a climate of skepticism, financial statements are frequently viewed with skepticism, resulting in the erosion of trust and confidence among various system participants. As a result, corporate governance failures and lax financial regulations are largely to blame for scams. Politics and legal institutions undoubtedly have an impact on corporate governance’s procedures, but management’s sincerity, assiduity, and management ideals ultimately determine how well they adhere to these laws and regulations.

And it is because of this lack of corporate governance standards that such frauds take place. While this is a debatable matter, it does depend on the scope, intensity, and seriousness of the financial crime committed on the one hand, and the effectiveness of the relevant regulator on the other. Lack of operational efficiency concerning the market participants’ access to information, which frequently leaks and causes insider trading, and structural and organizational mismatches, since the majority of share trading is concentrated on just two prestigious stock exchanges, go against the Pherwani Committee’s recommendations.

Excessive speculation frequently slows capital market development, and brokers and wealthy individuals such as Ketan Parekh, Harshad Mehta, Neerav Modi, Vijay Mallya, and Lalit Modi have used this strategy to make illegal gains.

Stock tampering is the unlawful activity of artificially inflating or deflating the price of a share, usually by dishonest or fraudulent means. If a company or individual is found to have participated in such actions, they may face serious legal consequences, such as fines and imprisonment.

We anticipated that the SEBI would investigate the claims because they included the country’s wealthiest individual. The government cannot put the Indian people’s hard-earned money in danger to enrich the Prime Minister’s cronies. The LIC has invested a total of 36,474.78 crores in the Adani Group.

Over the past 30 years, major stock market frauds in India have taken advantage of weaknesses in the regional banking system. However, because of India’s increasing interconnections with the world economy and financial system, Mumbai may not be the location of the next major scandal’s planning; rather, it may be London or Singapore.

Or at least that seems to be what Hindenburg Research is implying in its research on Indian businessman Gautam Adani, whom it accuses of “performing the biggest scam in corporate history.” It was abruptly dismissed when it was released in the US on Tuesday evening.

In response to the detailed claims of stock manipulation and accounting fraud made by the short-seller, Adani’s chief financial officer stated in a three-paragraph response that the timing of the publication “shows a brazen, mala fide intention” to damage the group’s reputation just as its flagship firm begins a significant $2.5 billion share sale. The long statement also contains 88 questions for the fourth-richest individual in the world, none of which have been answered.

Following a five-year, 2,500% surge in Adani Enterprises Ltd., the center of an empire strongly aligned with Prime Minister Narendra Modi’s economic policy, investors appear to be at least a little wary, as seen by the $12 billion decline in Adani shares that followed the publishing of the report.

If Hindenburg is correct, a network of shady actors has strategically positioned itself in the heart of these opposing forces and is exerting enormous influence on India’s markets from afar in coordination with business tycoons at home. In the meantime, soaring stock values in India have come to represent a strong sense of national pride. And this is more of a concern for international investors than the charges about Adani stock. Are public markets in India reliable?

The Securities and Exchange Board of India assures complete isomorphic imitation, to use a word from development expert Lant Pritchett. Regulated businesses check off many of the same boxes that they would in a mature market. A rising number of these rules, like in the West, are related to corporate governance. However, delve further into the disclosures, and unsavoury figures emerge: “briefcase investors,” disguised as funds with a Mauritius domicile and accessible to any CEO seeking to generate some publicity for his stock.

The Indian regulator is occupied with pursuing technical benchmarks, such as outpacing the US in terms of the speed of the settlement cycle on the domestic market. However, efficiency is simply one aspect of asset exchange. Above all, it’s about trust and severe punishment for those who betray it, like in the cases of Enron Corporation and Bernie Madoff. Is SEBI holding off on intervening in the market till there is a public outcry?

The issue of family-controlled enterprises being close to political power is not exclusive to India and has existed for a long time. However, the development of jingoistic nationalism in recent years has given certain business executives’ actions a new sense of impunity. When can a yoga master tell his followers at a public gathering that everyone investing in his edible-oil firm will become wealthy, who needs a share prospectus? Investors in the Hindenburg-Adani drama should be particularly concerned about this prospect of darkness sweeping over India’s markets.

Satyam scam: SAT holds Sebi’s instructions and requests a new order within four months.

SAT  overturned Sebi’s orders barring Satyam Computer NSE 0.13%’s B Ramalinga Raju, B Rama Raju, and others from the securities markets for up to 14 years, and directed the markets regulator to issue a new order in the 14-year-old case. The judgment came after the six applicants appealed two different rulings issued by the Securities and Exchange Board of India (Sebi) in 2018.

The case involves Ramalinga Raju and Rama Raju, proprietors and directors of Satyam Computer Services NSE 0.13%, who allegedly falsified the company’s financial statements and made illicit gains through insider trading. Furthermore, B Suryanarayana Raju and SRSR Holdings reportedly traded Satyam Computer shares based on unpublished price-sensitive information. On January 7, 2009, Ramalinga Raju, the then-Chairman of Satyam Computer, acknowledged altering the company’s accounting.

Sebi barred V Srinivas and G Ramakrishna from the securities markets for 7 years in an order issued on October 16, 2018. Furthermore, Srinivas and Ramakrishna were ordered to repay Rs 15.65 crore and Rs 11.5 crore in unjust gains, respectively. Another judgment issued on November 2, 2018, barred Ramalinga Raju, Rama Raju, B. Suryanarayana Raju, and SRSR Holdings from participating in the securities markets for 14 years. They were also ordered to repay Rs. 813 crores in illegal earnings, plus interest.

The regulator had required them in these two rulings to disgorge the money plus 12% interest each year beginning January 7, 2009. Dismissing Sebi’s two decisions, the Securities Appellate Tribunal (SAT) said the approach of the regulator is erroneous and cannot be supported as “no justification has been presented as to why the magic figure of 14 years of constraint was suitable.” While setting aside Sebi’s orders, SAT requested that it issue a new order within four months.

It further requested that the regulator take intrinsic worth into account when assessing illicit gain. Furthermore, the illegal gain would be determined individually for each appellant. Furthermore, the tribunal asked Sebi to review the question of interest and the term of restraint for all appellants.

Edited by Prakriti Arora