Sebi beefing up search, seizure operations

Appoints recovery officer, forms separate division for recovery proceedings; income tax dept to provide training

Armed with fresh powers to conduct search and seizure operations and attach properties and bank accounts, the Securities and Exchange Board of India (Sebi) is going all out to use these effectively.

For this, Sebi officials would undergo training from officials at the income tax (I-T) department. “As we don’t have much experience in handling some of the new functions, we have asked the I-T department to impart training to our officials,” said a senior Sebi official.

For attachment of properties, the regulator has also appointed a recovery officer and formed a separate division to carry out recovery proceedings.

Sources said Sebi had set up two new teams — search & seizure within the enforcement division, and a recovery division under the legal department — responsible for carrying out the new functions. Though the exact number of officials working in these departments isn’t known, the regulator intends to gradually beef up these teams.

In July, President Pranab Mukherjee had promulgated an Ordinance that gave Sebi these powers. The ordinance has granted Sebi the powers to seek information from any individual (who might or might not be connected with markets) for carrying out investigation. But the final authority on the execution of these powers lies with the Sebi chairman. An officer for search and seizure needs the approval of the chairman, who can allow such an operation only when necessary.

The government has now authorised Sebi to, during the course of such operations, enter and search any building, vessel or aircraft, break open a lock or door, search any suspicious person and record statement under oath, as well as seizure documents.

So far, Sebi has issued notices for attachment of the bank accounts of various entities in four different cases, including the Pyramid Saimira and MPS Greenery ones. A Sebi official said the board might start conducting more search and seizure operations after proper training.

Earlier, Sebi could only pass orders or ban entities from accessing capital markets, but couldn’t do much to recover dues. Now, it can directly issue directions to banks to freeze the accounts of defaulters or attach and sell properties. For this, a Sebi recovery officer has to issue a signed certificate in a prescribed format, specifying the amount due from the entity whose assets are to be attached.

Now, Sebi is planning to pursue cases in which it had earlier passed an order, but wasn’t able to recover the penalties. It hopes the Ordinance is passed and becomes an Act.

To a large extent, the new powers have brought Sebi on a par with other foreign securities regulator, including the US Securities and Exchange Commission (SEC), which can ask defaulters to pay disgorgement to repay ill-gotten gains to investors. Sebi’s global counterparts have effectively used disgorgement powers to recover dues.

However, powers to wire-tap, a function critical in prosecution, especially in insider trading cases, haven’t been granted to Sebi yet. Unlike SEC, Sebi isn’t given access to phone call recordings. It can, however, seek call data records.

ARMED & READY

* Sebi has already issued bank attachment notices against various entities

* The regulator plans to go after more violators for recovering unpaid dues

* It is hopeful the Ordinance will become an Act

* Ordinance has provided Sebi powers on a par with those of global peers

* However, unlike the US SEC, the regulator lacks access to wire taps