STERLING INSTITUTE OF MANAGEMENT STUDIES

SUB CORPORATE LAW

Presentation Topic Cases on SEBI

Presented to:Prof. Anjana Menon

Abhishek Jain (B) 105

Presented By:-

Pravin Barge (B) 104

Nilesh Thakare (B) 92 Sunil Jain (B) 71

Ganesh Bhat (A) 52

Shrikant Jadhav (B) 70

INTRODUCTION

The Securities and Exchange Board of India, setup in 1988 under an administrative arrangement ,given statutory powers with the enactment of the SEBI Act 1992. The act provides for the establishment of the board to protect the interest of investors in securities market. The board consists of a chairman , two members from the govt. of India, ministries of law and finance, one member from the RBI and two other members It describe the manner in which SEBI Act 1992,the SCRA 1956,thecompanies Act 1956 and the depository act 1996

OBJECTIVES OF SEBI

The three main objectives are:To protect the interest of the investors in securities To promote the development of securities market To regulate the securities market

FUNCTIONS OF SEBI

Regulating business in stock exchanges and any other securities market Registering and regulating the working of depositories, custodian of securities, FIIs, credit rating agencies Promoting investors education and training intermediaries of securities market Prohibiting insider trading in securities

INSIDER TRADING REGULATIONS & PRACTICES

INTRODUCTION
Insider trading essentially denotes dealing in a company s securities on the basis of confidential information relating to the company which is not published or not known to the public used to make profit or loss

WHO ARE INSIDER TRADERS?

Corporate officers, directors , and employees who traded the corporations securities after learning of significant , confidential corporate developments. Friends , business associates, family members , and other types of such officers , directors , and employees, who traded the securities after receiving such information.

REGULATORY ASPECTS OF PROHIBITION OF INSIDER TRADING

SEBI prohibition of Insider Trading regulation 1995. Section 11(2) E of companies act 1956 prohibits the Insider Trading What is Insider Trading is not defined in the companies act -1956

CASE STUDIES
o

RAKESH AGARWAL vs. SEBI

SAMIR ARORA vs. SEBI

RAKESH AGARWAL VS. SEBI

RAKESH AGARWAL VS. SEBI

One of the most famous case highlighting the vulnerability of the SEBIs 1992 regulations. Rakesh Agarwal, MD of ABS Industries Ltd was involed in negotiations with Bayer A.G, regarding their intention to takeover ABS. SEBI alleged that prior to the announcement of acquisition, Rakesh Agarwal, through his brother-in-law, had purchased shares of ABS and tendered the said shares in the open offer made by Bayer.

RAKESH AGARWAL VS. SEBI

Pursuant to Bayers condition to acquire at least 51% shares of ABS, he, through his brother-in law bought the shares and later sold them to Bayer. The SEBI directed Rakesh agarwal to deposit Rs 34,00,000 with Investor Education & Protection Funds of Stock Exchange, Mumbai and NSE. SAT held that the SEBI order directing Agarwal to pay Rs 34 lakh couldnt be sustained, on the grounds that Rakesh Agarwal did that in the interests of the company.

SAMIR ARORA VS. SEBI

SAMIR ARORA VS. SEBI

Sameer Arora was star fund manager of Alliance Capital Mutual Fund (ACM) and the poster boy of the Indian Mutual Fund Industry. He was managing Rs 2264 crores with ACAM invested in Indian equity and fixed income markets as of 31st August 2003. The fund which was launched in 1995, had been generating a return of 2.463 % since inception under the growth option.

SAMIR ARORA VS. SEBI

In April 2003, there were talks about the consolidation of Digital Global Soft LTD (DGL) with the Hewlett Packard Indian Software Operations(HPISO), a 100% subsidiary of HP. On May 8, 2003 an internal analyst of Alliance recommended reducing position in the stock. ACMF sold 1.19 lakh shares and ACM sold 2.18 lakh shares. On May 12, 2003 ACMF sold 3.35 lakh shares while ACM sold 2.5 lakh shares.

SAMIR ARORA VS. SEBI

In August 2003, SEBI charged Samir Arora of insider trading under Section 11B and 11(4)(B) of the SEBI Act. SEBI indicted Arora on many serious charges i.e -

A. Trading DGL shares on the basis of Unpublished price sensitive information. B. Non-disclosure after crossing 5% limit in several companies C. Causing panic in the market by making public his decision to quit Alliance Capital, leading to the redemption of Rs 1300 Crore.

SAMIR ARORA VS. SEBI

In April 2004, SEBI debarred Arora from dealing in securities directly or indirectly for five years. SEBI charged the penalty of Rs 15 Crore on ACM and two associated Alliance entities. October 2004, the Securities Appellate Tribunal set aside the order of SEBI on grounds of insufficient evidence to prove the charges of insider trading and professional misconduct against Mr. Arora.

OBSERVATION

Inability of SEBI in proving its cases. Proving Insider Trading a bizarrely difficult task. Lack of assistance from Central Economic Intelligence Bureau (CEIB) to investigate the cases. Absence of an adequate remedy available to the investors at large.

IPO-DEMAT SCAM STORY OF SCAM SHAME

Industries and finance sector always tried to tap the primary market during a boom. Mobilize the financial resources through Public Issues and IPOs. In 2004-05, more than Rs.24,000 crores have been mobilized from the primary market through Public Issues and IPOs. It is the sad part of the Indian Capital Market that every IPO boom has a scam. It was during 1986-88, the primary market momentum had a mini-scam of mini-steel plants and mini-cement plant public issues. These companies tapped the market, fooled the Small Investors, collected hundreds of crores of Rupees, diverted the funds. Small Investor was the loser.

STORY OF GREED, FAILURE OF SYSTEM

Started in August 2004 Loot & Cornering Small Investors Quota by Syndicate of Broker, Investor, Bank, DP Failure of Surveilance & Vigilance of Regulators 53 Ipos 5 crore Shares, 1 Lac Bogus Demat a/c The Roopalben, Sungandh Investments, Zaveris, Budhwanis & Sakserias, along with the Broker-Investors, with support of Banker & DP run the Show-Scam for 18 months.

STORY OF PANCHALS
Failure of SEBI, NSDL, CDSL, RBI,BSE

Connivance of all of the above made 43,982 applications in fictitious names in IDFC Public Issue. Got alloted 1,17,05,872 shares. Roopalben & Budhwani were allowed to open 5,000 Bogus Demat A/c on the last day of IDFC issue by Karvy & Bharat Overseas Bank.

MASTERMIND TO CORNER SMALL INVESTORS SHARE

The entire game plan, is well designed,

The syndicate shared the Share Allotment Benefit Investor to get 50% of Bogus Allotment Panchals & Broker, the Shell Investment Cos remaining 50%. Karvy put added further thousands application.

IPO OF IDFC

IPO of IDFC opened on July 15, 2005 and closed on July 22, 2005. Basis of allotment finalized on Aug 04, 2005.

Shares credited to IPO allottees on August 05/06, 2005.

Shares got listed on the Stock Exchanges on August 12, 2005.

Yes, before listing the Scamsters use to transfer shares to the Beneficiaries accounts. Mutual understanding. Unsigned Moll.

SMALL INVESTORS PORTION/ QUOTA

IDFC came out with public issue of 403,600,000 equity shares of Rs. 10 each for cash at a price of Rs. 34 per equity share . 141,260,000 equity shares were to be offered to Small Individual Investors (defined as Individual Bidders who bid for equity shares for an amount less than or equal to Rs. 1,00,000 as per prospectus).

TRANSACTIONS IN IDFC SHARES BY ROOPALBEN PANCHAL & ASSOCIATES

Roopalben have their demat a/c with Karvy Stock Broking Ltd. Panchals also have thousands of Fictitious-Bogus-Benami Demat Accounts & Banks A/C at the same address 34 Ketan Tower, Camp Road, Shahibaugh, Ahmedabad-380004. 402-403, Shashwat, Opp. Gujarat College, Ellisbridge, Ahmedabad , bank accounts with Bharat Overseas Bank, C G Road, Ahmedabad.

SEBI FINDINGS ON IDFC IPO

Thousands of applications are fictitious / benami names.

IPO applicants merely name-lenders or non-existent

These Bogus allottees transferred shares to Panchals, Budhwanis the Syndicate Transfer of shares before listing Sold shares on the first day of listing Bank in depositories allowed syndicate to open benami/ fictitious Demat and bank accounts

ORDER OF SEBI ACTION ON IDFC

Panchals, Investors, Syndicate & Others directed not to buy, sell in the securities market, directly or indirectly NSDL and CDSL to ensure that the demate a/c which served as conduit for Roopalben, Sugandh, Budhwani are not utilized for manipulation of IPO allotment in future. SEBI is directed to conduct immediately inspection of Karvy

ROOPALBEN & INVESTORS

Roopalben received funds from 8 entities Prior to the IPO of Yes Bank Ltd. Devangi Dipak Panchal, Rajan Dapki, Zenet Software Ltd., Excell Multitech Ltd., Taurus Infosys Ltd., Seer Finlease P Ltd., Barghav Panchal (HUF) and Jayantilal Jitmal She in turn transferred these funds to 6315 entities who had utilized these funds for making applications in the IPO of YBL.

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