Ever since the demat form of shares have been introduced in India,
naavi.org has been warning that the possibilities of fraud are high and
SEBI has to take care. True to its form, SEBI has been complacent (Deliberately?)
about the risks.
Now it appears that the Ketan Parikh episode has atlast brought the
biggest fraud in Indian Stock markets into open. This would involve the
Bear Cartel, SEBI, the Stock Holding Corporation and the Cyber Shares.
(demat shares).
This scam is bigger than the Harshad Mehta or Ketan Parikh related Bank
scams and more sinister. Both Harshad Mehta and Ketan Parikh borrowed money
from the Banking system to fund their Bull operation in the stock markets.
SEBI called it price rigging. RBI moved in to investigate the procedural
irregularities in the Bank and choked the funds flow. The IT department
did it's best to confiscate all assets of the Bulls to leave no room for
escape. The result was a massive default by the buyer and a big fall in
the market, driving out the small investors. Until now any reference to
the "Bear conspiracy" was ignored by the media and the regulators and the
bull operators were held solely responsible for the market fall.
SEBI even went to the extent of applying censorship on the Web media
by blocking Harshad Mehta's web site where in he was putting up equity
research reports. SEBI ensured an environment whereby anything connected
with Harshad Mehta was taboo and companies got panicky if their shares
were indeed recommended by him. SEBI is trying to do the same thing now
against Ketan Parikh and his favourite stocks.
The game appears to now have reached the end. It has now been reported
by two major publications in India, namely the Hindu and Business Today
(See articles quoted below) that there has been a huge scam involving "Borrowing
of Shares" from Stock Holding Corporation to be delivered against short
sales by the bear operators. The law of demand and supply determines that
a sale beyond a critical level (Beyond the buying interests in the markets)
will depress the prices. If the quantity sold is big enough, the fall in
the price would be larger than the margin money payable on the "Borrowing
of Stocks" and can be covered by purchases at lower prices. By repeating
the exercise in cycles, the prices can be brought down to the floor. It
has been reported that more than a 10 million shares of HFCL shares
(worth over Rs 13 billion or 1300 crores) has been borrowed by the bear
cartel to hammer the prices down from the levels of Rs 1300 to the present
levels of around 114.
This has been facilitated to a large extent because the shares were
available in demat form. It is to be examined whether these Cyber shares
were actually existing in the Stock Holding Corporation and if they were
actually accounted for. It is possible that shares could have been lent
without accounting so that a mere computer entry could have created
a huge deliverable stock holding in the hands of the bear operators.
A question also arises whether the demat shares belonging to a share holder be lent
without his consent so as to depress the value of the original share holder himself?If this is desired, should not the investor be
compensated from the earnings of the demat institution aginst lending?.
Is this a Cyber Crime? Is the Demat share an Electronic Document? Is Screen based Trading
a form of Cyber Contract? Can a public interest litigation be filed against the Bear Cartel, SEBI and
Stock Holding Corporation under the ITA-2000 for cheating the public through electronic documents? Can we invoke Sec 43 of the ITA and claim compensation
or allege that the Demat holding of an investor is like a Cyber Content and any unauthorised change by the
institution in the form of lending, is like "hacking" into the investor's Cyber Space?... are
the questions that now arise in the minds of Cyber Lawyers. May I have
your views?
Naavi
April 9, 2001
Report
in Business Today
Report
in Hindu
Do readers have a views on this? or suggestions?. If so, Your
views can be sent here
