Financial Times

Strange ways of a watchdog
The strange but steadfast refusal by the new director general of the Securities and Exchange Commission (SEC), Palitha Gunawardena, to reveal information about the insider dealing probe against the SEC's former chairman Michael Mack and others can hardly improve public confidence in him or his organisation. Gunawardena is carrying on with the previous practice of prohibiting other members of the SEC from talking to the media and maintains that he is the only authorised source of information. Yet, when the media does approach him for information he is strangely evasive, even about matters that are public knowledge or about which the public have a right to know.

His evasiveness or fear of the media appears to be so great that he even refuses to say 'no comment' when asked to comment about the status of his organisation's most controversial investigation, which is coming up for argument in the Appeal Court on February 23, 2004. This is all the more striking at a time when there is so much concern and debate about the need for greater transparency and openness - a need that has become part of the public discourse because of the scandals that have rocked developed markets, in which some of the standard bearers of market capitalism have been found to be crooks driven by greed and over-sized egos. Yet, this new culture of openness seems strangely alien to the new head of our markets watchdog.

Public confidence in the SEC was shattered when news of the insider dealing probe, perhaps unprecedented in that it was against the watchdog body's own chairman, was broken by the media last year. Matters got worse when some of the commissioners of the SEC tried to first block the investigation and then prevent action to prosecute the accused, who have always maintained their innocence and should be regarded as innocent until proved guilty.

The fact that some of these gentlemen on the Commission interfered with the normal course of an investigation and tried to prevent it from getting as far as the courts hardly helped the cause of the accused. The blatant interference of these Commissioners and their arrogant disregard for the usual processes and institutions of justice prompted the highest legal officer of the state, the Attorney General, to rap them on the knuckles. This was when he described the action of the SEC Commissioners in getting a "second opinion" in the Mack case as "improper". Some of the gentlemen accused of behaving improperly still continue to hold public office.

The media represents the public's right to know and depriving the public of their right to know is a denial of their freedom of information. Gunawardena also seems to be having double standards. In an evasive e-mail interview he gave this newspaper a few months ago, shortly after his appointment as SEC director general, Gunawardena said he wants to promote more disclosures as well as 'whistleblowers' in the firms the SEC regulates under a new effort to improve corporate governance in listed firms. Yet, he refused to say whether he would encourage such 'whistleblowers' in the SEC itself. This is particularly disturbing considering the attempt to sweep the whole Mack affair under the carpet by some members of the Commission.

Gunawardena's inexplicable and illogical reluctance to divulge information about the insider dealing case, which caused such a scandal in his own organisation and forced Mack to resign and prompted the resignation of his own predecessor as director general, will only serve to heighten fears of the investing public that the whole matter could be swept under the carpet. It can only further weaken the investing public's faith in the SEC's ability to prevent market irregularities that could endanger their money.

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