Competitive Exams: Current Affairs 2012: SEBI Surveillance

Capital market regulator SEBI has barred seven companies from accessing the capital market. Its ongoing investigations and surveillance revealed that these companies, which tapped the capital market recently, were guilty of malpractices-such as grossly violating disclosure norms, falsifying and withholding information, and illegally diverting the funds garnered from the share offerings (IPO).

Six merchant banks that lead-managed these IPOs have also been barred. It is very likely that SEBI will wield the stick against some more companies. But the question arises whether the quantum of punishment awarded meets the ends of justice and whether it is deterrent enough to prevent perpetuation of capital market fraud.

SEBI has said it will get other agencies to proceed against the defrauding companies under the laws of the land. But then the experience in this respect inspires little confidence. More often than not, investigations into cases of capital market fraud fizzle out, once they get away from the glare of publicity. Besides, it is unlikely that retail investors who bought shares in these companies will ever be compensated for the loss.

Since its inception, SEBI has taken a number of steps to protect investors. Its regulatory and supervisory functions have expanded considerably to keep pace with the increased volumes and sophistication of the stock markets and their operators. A lot of attention has been paid to investor education.

Informed investors can be a bulwark against sharp practices of unscrupulous promoters. Stock exchanges have been compelled to reinvent themselves and function professionally.

In a masterstroke, merchant banks and other capital market intermediaries were brought under a regulatory regime in the 1990s.

However, not only has there been a frequent recurrence of scams but the modus operandi has kept changing.

There is the case of ‘vanishing companies’ where the promoters disappeared after collecting the proceeds from IPOs. In 2005, there was the demat scam in which shares meant for retail investors were cornered by a group of people who submitted multiple and fictitious applications through numerous demat accounts. Scams such as these undermine the very integrity of the IPO process, which is based on trust and requires a high degree of disclosure in the prospectus.

Courtesy: The Hindu