Top Govt. politico among investors summoned by SEC via ‘fiery’ notice

A top Government politician is among scores of investors who have received notice of summons by the Securities and Exchange Commission (SEC) as part of regulator’s move to punish manipulative trading.

The Daily FT learns the SEC has fired letters to concerned investors based on material and information it has in possession following investigations in to alleged malpractices in trades conducted in the recent past.

Whilst summoning is part of core function of the SEC, those who are in the know have been put off by the harshness of SEC’s notice.  Analysts said the notice of summons is to record information from the persons concerned as part of normal investigations hence the wording of the letters has created a fear psychosis.

“Since SEC is acting on alleged abuses and the recording of statements signifies early stage of investigation, the tone is harsh and driving fear. This is very detrimental to those who are yet to be found guilty by a legal process,” analysts opined.  

Some of those who had previously received summons and proved innocent later on claimed that the fresh notice was demoralising. Others said it was the standard format.

Summons issued by SEC’s Acting Director General Prof. Hareendra Dissabandara concludes by warning those under investigation that “failure to appear before the Commission, refusal to answer any question, refusal to produce any book or document in possession or control when required or knowingly giving false answer shall render” the person to being found “guilty of an offence in terms of Section 46A (4) of the SEC Act and shall on conviction after summary trial before a Magistrate render liable to a term of imprisonment of either description not exceeding five years or to a fine not exceeding one million rupees or both such imprisonment and fine.”

Tough action by the SEC is likely to be cheered by good governance activists and those who trade fair but some brokers and investors pointed out that unnecessary harassment or instilling fear will drive more investors away from the market.  



Some alleged the market’s downfall from the peak of Rs. 2,213 billion market capitalization to Rs. 1,807 billion last month (improved to Rs. 1.9 trillion yesterday), was owing to excessive regulations and other market deterrents whilst some however pinned it to loss of overall confidence in the market (due to manipulation) as well as better returns in fixed deposits, and economic downturn and volatility in exchange rate.

Chairman Tilak Karunaratne in his review in the SEC’s 2011 Annual Report said that while fostering the development of the economy, the capital markets also play an important equalizing role. Viz – it attracts the participation of a large number of people in the economy by investing in securities and other derivatives. “Therefore the role of the regulator becomes even more important as there is a large number of stakeholders involved. It follows that a well regulated market will encourage more people to come in as investors and contribute to the development of the economy.”

“We continued to remain vigilant and maintain robust surveillance of the trading activities to ensure that the market operates in a fair and orderly manner and promote efficient price discovery. The SEC is able to monitor trading activities on a real time basis to detect a wide range of possible market misconduct. This enabled us to act promptly to curb potential market misconduct and enhance investor protection,” he added.

Last year it was midst or in the aftermath of apparent investigations in to some trades by high profile investors that triggered the exit of SEC’s Director General Malik Cader as well as Chairperson Indrani Sugathadasa. However when the duo left the SEC, the market was relatively active judging by Rs. 2.2 trillion market capitalization as opposed to its slump to Rs. 1.9 trillion at present. Colombo Bourse remains Asia’s worst performer with a negative return of over 17% year to date whilst during past three market days there has been return of bargain hunters.