For the good of the stock exchange and country, says respected good governance activist in letter to the President
Good governance and minority shareholder rights activist K. C. Vignarajah has bolstered the argument put forward by concerned citizens of this country that capital market offenders should be jailed, as wrongdoers attempt to mislead the President and prevent the Securities and Exchange Commission (SEC) from cleaning out the market.
In a letter to President Mahinda Rajapaksa Vignarajah said: "Your Excellency’s ambition to fly the flag of our country high is being undermined by many extremely selfish persons. You have great potential to do good by defending the actions of the regulators to do their duty of protecting the investors, create level playing field and ensure fair-play.
"Your Excellency, the correct people are now there (at the SEC) to implement the regulations. Your support and encouragement to them, to do their duties will certainly be a good move towards achieving one facet of your cherished goal of Si Lanka being ‘the wonder of Asia’," he said.
Vignarajah goes on to say that certain sections of the media have been manipulated by these "wrongdoers". Also, the broker community is split, with four broker firms openly in favour of the SEC’s stance on regulation, while individual brokers of other firms also contend that tougher penalties are in order.
The Colombo Stock Exchange which grew 125 percent in 2009 and 96 percent in 2010, fell 8.5 percent last year as the regulator began to tighten the screws on market malpractices. So far this year, the bourse has fallen nearly 20 percent. Influential manipulators have resorted to the shameful tactic of citing patriotism in a bid to wriggling out of the SEC net, accusing those pushing for effective regulation of being anti-government and anti-Sri Lanka.
Vignarajah’s letter to the President in full:
We thank you for inviting us to obtain our views on the current state of the stock market; the causes and possible remedies to reactivate the market.
The propaganda built up by certain sections of the media, influenced largely by the wrongdoers, (insider traders, market manipulators, front runners, ‘pump and dump’ artistes) who have been checkmated by the strong SEC. It appears to be orchestrated to replicate the last year’s very sad saga of the crooked operators boasting that they were able to move out honest outspoken Mrs. Indrani Sugathadasa and her able DG Malik Cader. Investor’s confidence was shattered and market continued to decline. The intimidatory caption, "Malik or the Market" was proved wrong!
Dr Thilak Karunaratne was appointed as the Chairman of SEC and Prof Dr Harendra Dissa Bandara was appointed acting DG. Within a very short period of time, they have established tremendous reputation of honesty, efficiency and sturdy independence. The mafia seems to have surges of maniacal anger whenever good, honest and truly patriotic persons go about doing their duties and protecting the innocent decent citizens of the country from being grossly exploited. The decent investor’s confidence is gradually coming back.
However, I wholeheartedly agree with Deshamanya Chari P de Silva’s article titled "Dividends or Capital Appreciation or Both?" appearing in Business Times (Sunday Times), Sunday Island & Sunday Leader on 15th instant.
Quote -"I cannot see a recovery of its old lustre unless the SEC prosecutes some big players and puts them behind bars. In the present climate of brazen criminality I cannot see this happening. It will need a new breed of very strong and upright people to reverse the present trend."
Your Excellency, the correct people are now there to implement the regulations. Your support and encouragement to them, to do their duties will certainly be a good move towards achieving one facet of your cherished goal of Si Lanka being "the wonder of Asia".
Your Excellency, we have heard of your passion to defend the rights, ensure the wellbeing and the upliftment of the average citizen. Their meagre savings and wealth can be devastated by the wrongdoers, in the absence of strong regulatory framework and proper guidance. Otherwise, it would be like leading thousands of lambs to the wolves. Briefly, the well known causes of the downfall of the market are:
* Rampant insider trading, market manipulation, front running, ‘pump and dump’ antics of the wrongdoers.
* Bad corporate governance. Absence of truly independent directors and auditors.
* Controlling Interests (CIs) manipulating financial statements/annual reports to create depressing "shareholder fatigue". Suppression of material information including proper valuation of assets etc.
* Cls of public listed companies siphoning off profits and spinning off valuable assets to subsidiary/associate/private companies where the Cls stakes are higher or total.
* Deliberate suppression of reasonable cash dividends, depriving real shareholder returns and revenue to the state by way of withholding tax. In 2006 budget speech, your Excellency extolled the virtues of an investment oriented public being encouraged by the payment of at least 50% of NPAT. Many loopholes were created and your wonderful vision was nullified. Your vision must be revived, and implemented with full force. It will create tremendous impetus and be a WIN—WIN situation for the stock market, investors and Treasury.
* The strange movements and volatility of the Exchange rate and the Interest rate have also caused havoc in the stock market. Many windfalls profits have been made whereas millions have suffered misery. The artificially propped up rupee caused the uncompetiveness of Sri Lankan goods and services, ballooning the Trade Deficit which can only be addressed by a competitive rupee.
The appalling, brazen NSB-TFC deal was a grievous insult to the integrity of our stock market and our country. I was the first to applaud and defend your action. Some so-called analysts and experts stated that it was wrong action on your part to interfere with market trades! I had countered that these insider deals were illegal and void ab initio! Thus no rights can flow from such illegal contracts.
Your Excellency’s ambition to fly the flag of our country high is being undermined by many extremely selfish persons. You have great potential to do good by defending the actions of the regulators to do their duty of protecting the investors, create level playing field and ensure fair-play.
Thanking you for your attention,
K. C. Vignarajah."