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Monday, 18 June 2012 08:14
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Can Sebi prosecute someone of his stature?

 

Given the public outpourings of support from India Inc, to the extent of even declaring him not guilty, for Rajat Gupta before his trial in the US, you wonder what would have happened if a Rajat Gupta was to be prosecuted for insider trading by Sebi. Or if, God forbid, a BP-type industrial disaster was to take place in India, what would be the response? Chances are India Inc’s leading lights would talk of the CSR work done, of the billions invested in the country, of the thousands employed …

With Gupta’s conviction, 62 of the 68 persons accused of insider trading by the US Attorney’s Office have either confessed or have been convicted. In Gupta’s case, the conviction was got (Gupta’s legal team will contest the verdict in higher courts) despite no concrete evidence of him having benefited financially, showing if a case is well argued, even circumstantial evidence is good enough—Gupta called Rajaratnam within a minute of the Goldman board meeting on September 23, 2008, in which Warren Buffet’s $5 billion investment in Goldman Sachs was discussed, and Rajaratnam bought Goldman shares after the call (there is no recording of this conversation though). In sharp contrast to this, Sebi’s track record remains poor. While the number of insider trading investigations were up from 10 in 2009-10 to 28 in 2010-11, few were high-profile—in the Wockhardt case, Sebi sentenced the CFO found guilty of insider trading to a mere R5 lakh and ruled he could not work as a compliance officer in any company for another 18 months! While Sebi has now said it will not allow consent orders to be used in cases of insider trading, it has yet to move on the high profile insider trading cases it is investigating.

What’s more, there is little to suggest Sebi is being armed to tackle a crime that most believe is rampant in the Indian stock exchanges. Sebi, till date, does not have a digital list of corporate networks—who is related to whom, by marriage or through business—that can be computer-matched on a 24x7 basis with trading patterns. The government refuses to give Sebi the power to tap phones, even its request to at least get the phone call logs of persons it is investigating has been turned down. Hardly surprising then that the majority reaction in India to the Rajat Gupta investigation, and subsequent conviction, has been one of utter surprise.

 

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