Sebi needs to explain

Several question have arisen after Shankar Sharma obtained trading data maintained by Sebi

On September 12, 2002, the Securities and Exchange Board of India (Sebi) cancelled the registration of First Global Stockbroking as a broker and portfolio manager. The stock market regulator held the brokerage house responsible for the stock market crash on March 3, 2001 (immediately after the presentation of the Union Budget), when the Bombay Stock Exchange’s Sensitive Index fell 177 points, wiping out an estimated Rs 35,000 crore of market capitalisation. That stock market crash became politically controversial because 10 days later a website, Tehelka.com (in which First Global’s director and chief global trading strategist, Shankar Sharma, had an equity stake) ran an expose to show how ruling party politicians accepted money from people claiming to be arms dealers. The Tehelka tapes led to the resignation of the then defence minister, George Fernandes, and the then BJP president, Bangaru Laxman. Even before the stock market regulator could complete its investigation and impose penal measures, as it finally did a year-and-a-half later, the government had let loose its law enforcement agencies on Mr Sharma, who was arrested on two occasions even before any charges against him could be established, and then held in captivity for a prolonged period. Eventually, those charges against Mr Sharma could not be upheld and he was acquitted. His company filed an appeal with the Securities Appellate Tribunal, which set aside Sebi’s order on December 3, 2004.

It has long been suspected that the cases against Mr Sharma and his company were not a result of wrongdoing on their part, but as punishment for having been involved with Tehelka. The fact that the cases were dismissed (one on technical grounds) supports this view of what happened. Further evidence to buttress this view has now been produced by Mr Sharma, suggesting that the stock market regulator had no reason to suspect the activities of First Global in the first place. Using the Right to Information law, Mr Sharma has obtained the trading data maintained by Sebi for the period in question. These data show that First Global does not even figure in the list of 50 largest sellers, from the middle of February to the middle of March 2001. That raises the question as to why this data was ignored by Sebi before it passed orders against First Global. Indeed, the prosecution lawyer was so unhappy with the case being made out that he withdrew from the case, in itself a telling comment.

If so, several questions arise. On what grounds did Sebi take action against First Global? Why do the concerned people show reluctance to address the issues that have been raised? Sebi’s continued silence on this matter will only undermine its standing as an independent regulator that acts without being influenced by the government’s political motives. Cases of state vendetta against individuals are not unknown, but this is the first case where the political authority seems to have influenced stock market regulators. Is it coincidental that First Global received Sebi’s adverse verdict during the tenure of the Vajpayee government? And that the appellate tribunal set aside that Sebi order a few months after the Vajpayee government completed its tenure?