* Rampant conflict of interest, pump-and-dump, insider trading, auditors singing for their supper and listed companies flouting their own code of conduct
* Another bubble? Some share price movements today beyond belief
Senior professionals respected former stalwarts in their chosen fields have banded together to form the Association of Independent Shareholders of Sri Lanka (AIS) in a bid to raise awareness of rampant malpractices in board rooms and the Colombo Stock Exchange with the hope of someday taking legal action against companies and entities guilty of oppressing minority shareholders and a host of other wrongdoings taking place with impunity.
Expressing "fury and disgust" with the recent developments at the Securities and Exchange Commission (SEC) where two chairpersons resigned under a year of each other after well connected investors raised a hue and cry about over regulation, Mahendra Amarasuriya (former Chairman Commercial Bank of Ceylon PLC, Charitha P. De Silva (former Chairman Aitken Spence and Ceylon Chamber of Commerce and good governance and minority shareholder rights activist K.C. Vignarajah, are spearheading efforts to form the AIS, which they hope to incorporate in a months time with the three of them functioning as guarantors. Together with Chaturanga Perera, Senior Partner, LEX Partners Law Academy, they will form the core groups of the association which has so far attracted around 25 investors.
All four expressed their views at a lengthy press conference yesterday (04), which we will refer to as the Core Group.
They said the country and the stock exchange had much potential, with the bourse playing a critical role in driving entrepreneurship and democracy in Sri Lanka.
However, the Core Group said market malpractice such as insider trading and pumping-and-dumping were taking place with impunity and that directives introduced by the former chairpersons, Ms. Indrani Sugathadasa and Thilak Karunaratne, were intended to protect small time investors at the Colombo Stock Exchange from those manipulating the market and making ill-begotten gains at their expense.
In one voice they said the SEC had not over regulated the market. "Those who make billions through illegal means end up compounding their offences for a few million rupees, so how can anyone say the bourse was over regulated? Also the price bands prevented those manipulating the market from proceeding any further. There are around two to three thousand individuals being used to manipulate the market via insider dealing and pumping-and-dumping," the Core Group said.
"Everyone thinks the market is now doing well. Brokers say the market has direction and that people are no longer afraid. Only time will tell whether or not another bubble is forming," the respected gentlemen said. "Even today, share prices of some companies have increased by more than Rs. 1,000 with 20 to 40 shares being traded but the companies in question have no proven track record."
They found comfort in the fact that the new SEC commission members had not changed any of the directives put in place by their predecessors and association hopes it could work closely with the SEC to stamp out market malpractices.
The Core Group said it was a shame the private sector flouted good governance and ethical practices.
They said a good majority of the companies in the Ceylon Chamber of Commerce failed to comply with the chamber’s own code of conduct. Minority shareholders are not respected and not paid decent dividends leading to rampant minority (shareholder) oppression.
Auditors too came for some thrashing, with the Core Group criticising them for merely ‘singing for their supper’ and conniving with those with controlling interest in listed companies. These chartered accountants were called chartered rogues. They said listed entities should change auditors every three years or so, as made law in Bangladesh. However, changing auditors is a near impossible task, the Core Group said, with senior partners of audit firms sitting in various board rooms themselves, so conflict of interest was the norm in this country.
The Core Group believes the President lost control of the situation at the SEC after the two SEC chairpersons he himself had appointed resigned for trying to uphold the law.
“The President should look at his advisors more carefully. The President was mislead and lost control of the situation,” the Core Group said.
Former SEC Chairman Thilak Karunaratne mooted an association for minority shareholders, which he said ought to be developed by the SEC. In markets elsewhere, similar associations have been able to take listed companies to courts over shareholder oppression such as non-payment of dividends and lack of timely disclosures.
The Core Group is hoping their efforts would be supported by the SEC.
“The SEC maybe weary in getting itself entangled in long-drawn legal battles, this is where we come in,” the Core Group said.
It plans to develop research capabilities, which would be used to educate investors, question directors at AGMs and if the need arose, take errant companies to courts.
The association said it wanted to focus on quality and not quantity, and members would be thoughtfully selected, however, non members too would have access to the association where they could seek redress for their grievances.
“We do not intend to be a debating club, We need to act swiftly because the mafia moves fast. We are in the process of laying down the constitution and strategies with our legal advisors,” the Core Group said.