Financial Times

Stocks: ‘Elite always get confidential information’ – broker
By Duruthu Edirimuni
The latest decision by the Securities and Exchange Commission (SEC) to compound an insider dealing offence has generated mixed views in the market and left an impression that rich businessmen accused of breaking the rules can get away by paying a fine without admitting guilt.

The SEC recently announced it had compounded the offence of market/price manipulation by Dinesh J. Ambani and Metropolitan Office Ltd., who were each fined Rs 3.3 million, and that compounding does not entail a finding of guilt.
Some stock brokers said that people who have a standing in society cannot be expected to go to jail, because of a ‘slip-up’.

“Insider dealing is not a heinous crime to be hauled up in front of the regulatory authority and we cannot expect a businessman of the stature of Dinesh Ambani to go to jail, because of an unintentional mistake,” a CEO of a stock brokering company said.

He said the SEC publicising this incident will affect negatively on the stock market and people will lose confidence in trading. “There are instances where you have to turn a blind eye,” he said, when asked the alternative to a white collar crime such as insider dealing.

A fund manager said that rather obvious cases of insider trading being compounded raise a lot of questions in the market and other stakeholders in the industry. “Compounding is an easy way of getting out and it is necessarily not a good thing,” Namal Kamalgoda, Chief Investment Officer, Eagle NDB Fund Management Company Ltd., said.

He said that the legal system does not offer any consequences to the lawbreakers. “The law does not seem to hold good half the time, because the law does not have any consequences on common criminals right up to the politicians,” he said.

Kamalgoda said that on the other hand because of lengthy court proceedings some who may have not done a mistake take the easy option. “Maybe a more effective and speedy court procedure with a specialised court will do a better job,” he added. Asanga Seneviratne, Chairman of the Colombo Stock Brokers’ Association, said that a plain fraud should not be compounded, but when a fraud case is murky it should be compounded.

“Some insider dealing cases are straightforward and the SEC should not compound them, whereas some have grey areas. Cases which are not clear cut should be compounded."

He said that compounding fees are very high by Sri Lankan standards. “Most insider dealing offences have been minor, but the fines are excessive compared to the sort of issues that come up.”

He said that the market is very well regulated by the SEC, but people who are accused of insider dealing take the easy route, because the legal process in the country is long and drawn out. “Most have not fought insider dealing cases, because they want to avoid harassment.”

The wrong signals seem to be going to the market despite the SEC’s assurance that it is a warning to other would-be perpetrators. Many stakeholders in the industry were confused about the genuineness of a ‘mistake’.

“It is just paying to dodge a tight spot, which you are in ‘inadvertently’,” a stock broker said. He said that compounding an offence is the fastest way to get out of a sticky situation. When asked about the difference between a common pick-pocket going to jail, unable to compound his offence as opposed to the white collar offenders of the stock market, he said that it is ‘just how the system works”.

A stock analyst said that he is totally against the SEC rule of penalising an offender. “Colombo is a small city and everyone is related to each other.
The few people who are playing the stock market are privy to information and each time they do something like this, the SEC should not penalise them.”
He said that the elite always get restricted and confidential information for which there is only little that the SEC can do.

He said if the SEC takes them to task each time that they make a ‘mistake’, there is a danger that these clients will not trade on the CSE, which in turn will discourage trading in the market.

“If they have done a mistake they have definitely be taken to task, but the SEC should not have gone about it with a huge hue and a cry,” a stock broker remarked. However on a very optimistic note, he said that the offenders will think again before repeating their offences in the future.

Another stock analyst said that this kind of behaviour has to be punished. “This will make sure that the offenders will not repeat their ‘mistakes’ and sends a clear message that the offences will not go unpunished.”

A stock analyst said that paying to dodge a tricky situation is fair. “Since they pay a large fine to get away, the prevailing law is acceptable,” he said.
A stock brokering company’s CEO said that compounding is a good thing, because errors can happen without intending to defraud investors.

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