March 10, 2017:
The preamble to the SEBI Act states that it is set up “to protect the interests of investors in securities and to promote the development of, and to regulate, the securities market and for matters connected therewith or incidental thereto.”
There is no doubt that SEBI has done some commendable work towards promoting and developing the securities market. But it needs to introspect on how much it has done towards its first purpose, viz., protecting investors, and whether it needs to do some course correction. A few cases are cited as examples.
Sahara matter: Two firms of the Sahara group sought to raise money by issuing OFCD (optionally fully convertible debentures) to the public. Sahara did not take SEBI permission, as required, to have it approve a prospectus for an offer to more than 50 people. SEBI issued a notice to the group not to raise money, but the group managed to get stays from Allahabad and Delhi High Court, and apparently raised money from far more than the limit of 50 investors.
In Oct 2011 SAT (Securities Appelate Tribunal) said that the group had to deposit ₹17,600 crores, plus 15 per cent interest to the investors. By March 2015 the amount, with interest, was determined at ₹40,000 crores with interest. The group has deposited with SEBI tens of thousands of crores.
What has been done with this money deposited?
Till Aug 2016 SEBI said it had had refunded a sum of ₹55 crore (including ₹24 crore of interest to 8,700 investors, out of the nearly 12,000 refund applications it received.
So, where is the rest of the amount deposited? To whom will it go, if not claimed within the statute of limitation?
Why did the Allahabad and Delhi High Court stay the order of SEBI which sought to prevent the public issuance, without a prospectus cleared by SEBI, as required by law? Will anyone question these judgements?
Are there any genuine investors? If 8,700 claimed only ₹33 crore as principal, out of over ₹17,000 crore raised, does in not raise red flags?
The NSEL scam: True, SEBI was not the appointed regulator of the commodity exchange, NSEL. It was FMC which was appointed regulator after the scam took place (FMC is now merged into SEBI). SEBI thus takes no responsibility for protecting NSEL victims, even after the merger.
SEBI is, however, willing and likely to fine five broking firms for mis-selling NSEL products. This is within its remit.
Now, the question to be asked is — what will SEBI do with the fine, as and when it is collected?
Will it recompense the victims of the mis-sold products, as it should?
Or will it be used by SEBI for its own purpose, perhaps to give bonuses or build offices?
This is what SEBI must introspect over, and go back to the first objective in the preamble, viz., to protect investors.
For, it seems that regulators are becoming collectors. Not only in India, but globally. After 2008, the US Treasury has collected $ 250 b. in fines from banks for their role in mis-selling sub-prime mortgage products! Very little of that has gone to recompense those who lost money due to the mis-selling. Most of it has been pocketed by the government. In a WSJ article, out of the $110 billion fines collected from four American banks, only $44 billion has gone into ‘consumer relief’ or to compensate victims.
It thus appears that regulators/State are being rewarded for NOT doing their jobs. And that consumer protection is low in priority.
This must change! SEBI, and the government, must seriously think of using the money collected through fines for compensating the victims, and not for their own means.
JMULRAJ
(The writer is India Head, Euromoney Conferences. The views are personal.)
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