Banishing Ketan

The Securities and Exchange Board of India SEBI has ordered a dramatic 14-year 8216;vanvas8217; for Ketan Parekh and seven entities. SEB...

The Securities and Exchange Board of India SEBI has ordered a dramatic 14-year 8216;vanvas8217; for Ketan Parekh and seven entities. SEBI has, for the first time, used its newly acquired powers under the amended SEBI Act to issue orders that would really hurt wrongdoers, instead of merely slapping them on the wrist. But a closer look at SEBI8217;s lengthy and well argued order indicates that this has to be just the first in a series of actions that have already been pending for over two years. While this order has barred Ketan Parekh, his cousin Kartik, and seven investment companies controlled by them, the brokerage firms owned by Parekh have not yet been touched. However, the SEBI order indicates clear evidence against these brokerage firms 8212; Triumph Securities, Triumph International and N.H.Securities. The same order also establishes the collusion of two foreign brokerage firms, Credit Suisse First Boston and Dresdner Klienwort Benson, with Ketan Parekh, so an order against them is also on the cards.

But punishing brokers and investment companies is the easy part of a regulator8217;s job. It is far more difficult to nab industrialists who colluded with Parekh to ramp up their stocks and diverted corporate funds to bail him out when prices began to crash. Collusion between business houses and brokers has been an important feature of every major scam in India; it is equally true that businessmen have been too powerful to punish because of their ability to fund political parties. This time, SEBI8217;s order against Ketan Parekh relies on the Carole L. Haynes case of 1995 decided by the US Securities Exchange Commission to argue that the proof of 8220;scienter8221; in manipulation cases need not be direct, it can inferred from circumstantial evidence such as price movement, trading activity and other factors. The same logic would also establish collusion between industrialists and Ketan Parekh for price manipulation.

The question is: can SEBI take the Scam 2000 investigation to its logical conclusion by punishing industry, especially when the Joint Parliamentary Committee JPC chose to shirk the issue? Otherwise, scamsters may come and go but industrialists, who are among the prime culprits will remain unpunished.