• Investment World
• eWorld
• Catalyst
• Mentor
• Life
• Canvas
• Praxis
• Urban Pulse
• Brand Quest

S. Vaidya Nathan

The dismissal of SEBI's charges against Mr Samir Arora by the Securities Appellate Tribunal will have significant implications for the implementation of insider trading regulations. And it is bound to make SEBI's job more difficult.

IT HAS almost become the norm now for the orders of the Securities and Exchange Board of India (SEBI) to be overturned by the Securities Appellate Tribunal (SAT), especially in cases involving prominent companies or persons.

It is no surprise, then, that SEBI's charges, orders and press comments in the Samir Arora case have been thrown out by the SAT. (Mr Samir Arora was the Chief Investment Officer of Alliance Capital Asset Management Company.)

This verdict was expected as the supporting arguments in the original order seemed to lack a rational basis and cogency. The verdict may further dent SEBI's credibility in the implementation of regulations.

This case had become a model for SEBI to showcase its determination to crack down on capital market offences such as insider-trading. In this case, SEBI had taken a different approach and, in a welcome move, relied on circumstantial evidence to make the charge of insider trading against Mr Arora.

It is difficult to get hold of adequate information and documents to support an insider trading charge. If such an approach is adopted, it would rarely yield results. Even in the US, the Securities and Exchange Commission has found it difficult to nail someone on an insider trading charge. But the rate of conviction attained by the SEC in this difficult area is much better than SEBI's record.

In this backdrop, SEBI's relying on circumstantial evidence was expected to unearth many more such cases. But the regulator has not charged any prominent person/company with such an offence after its order against Mr Arora. Trading based on inside information is still rampant across a swathe of stocks — large-, mid- or small-cap.

The manner in which SEBI had made out its case against Mr Arora in its orders — preliminary and final — left enough loopholes that could be used against it without too much trouble.

In its final order, SEBI's counter to the arguments put forth by Mr Arora, too, lacked cogency and conviction. The absence of a charge against company officials, and the move to pursue the case against Mr Arora, even as Alliance Capital was let off, also weakened the regulator's position.

Every charge made by SEBI against Mr Arora was dismissed by the three-member SAT. This order represents the most severe setback yet for the regulator.

On the crucial charge of insider trading involving transactions in Digital GlobalSoft, the SAT has stated that there was no case. Its view that if information is false or uncertain, it cannot be considered as insider information will have a significant implication for the implementation of insider trading regulations. And it is bound to make SEBI's job more difficult.

The SAT's indictment of the wide-ranging comments in the media by SEBI's top brass on the case is as significant as its verdict on the latter's orders. Over the years, there have been several instances of SEBI officials making questionable comments.

The most famous (or infamous, at it were) was the view by an official in the late 1990s that the market needed persons like Harshad Mehta, despite the proven charges against him in the stock scam of 1991-92.

Rarely, if at all, do SEC officials in the US comment on individual cases or market levels. If the harsh comments passed by SAT can ensure a discreet approach by SEBI officials, it would lead to a marked improvement in the regulator's functioning. SEBI also needs to examine ways in which it can ensure a better conviction rate, as that would be crucial to improving its credibility.

(For a detailed backgrounder on the case, refer `L'affaire Samir Arora: SEBI misses the bigger picture' in Business Line dated August 17, 2003 on our web site www.blonnet.com. SEBI's orders are available on www.sebi.gov.in.)

Article E-Mail :: Comment :: Syndication :: Printer Friendly Page

Stories in this Section
Bullish equities — Pan the surface, mine the depths

Copyright © 2004, The Hindu Business Line. Republication or redissemination of the contents of this screen are expressly prohibited without the written consent of The Hindu Business Line