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FINANCIAL CHRONICLE™ » DAILY CHRONICLE™ » Sri Lanka SEC completes probes, legal opinion sought: outgoing DG

Sri Lanka SEC completes probes, legal opinion sought: outgoing DG

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* Attempt to sweep investigations under the carpet, alleges Ravi K

Amidst accusations from some quarters that the Securities and Exchange Commission (SEC) was either dragging its feet in investigating rampant market malpractice at the Colombo Stock Exchange from 2009 to 2012, or sweeping it all under the carpet, the parliamentary Committee on Public Enterprises (COPE) is pushing the SEC to finalise the SEC Act which would give the regulator more teeth to deal with market offenders, and expedite investigations and show ‘significant’ results, especially with regard to the National Savings Bank (NSB)- The Finance Company PLC (TFC) fiasco.

Sources said top officials of the SEC were grilled for around two hours by COPE last week.

COPE had inquired into the delay in amending the SEC Act. Former SEC Chairman Dr. Thilak Karunaratne had initiated this move to deal with rampant market offences at the country’s bourse before he threw in the towel when highly connected investors who were under the SEC radar exerted enough pressure on the state, leaving the SEC to fight alone.

His predecessor, Ms. Indrani Sugathadasa had resigned less than a year earlier for the same reasons. Last week, the SEC’s Acting Director General Dr. D.B.P.H. Dissa Bandara resigned on principle although his term was to expire this May. He was appointed by Dr. Karunaratne.

The SEC told COPE that proposed amendments to the SEC Act were submitted to the Attorney General’s (AG) Department. The COPE had wanted the SEC to consistently remind the AG that the amendments ought to be finalised as a matter of priority.

COPE had inquired into the progress made on 17 investigations conducted by the SEC before Dr. Karunaratne had resigned.

COPE Chairman D.E.W. Gunasakara told The Island Financial Review that top officials of the SEC had been summoned to inquire into the progress of investigations that had commenced under former SEC head Dr. Thilak Karunaratne.

"We were told that some of the cases had been sent to the Attorney General’s Department. COPE wants the investigations expedited and we have asked for a report on the progress made thus far," Gunasakara said.

Last year, Gunasakara told the media that there was a mafia manipulating the market at the Colombo Stock Exchange and called on the government to strengthen the arm of Dr. Karunaratne and the SEC to crack-down on market offenders.

Sources said COPE had wanted the SEC to show significant results, and fast, as far as the investigations were concerned, especially those that commenced on Dr. Karunaratne’s watch.

The NSB-TFC transaction has been referred to the AG, the SEC said, but COPE wanted the SEC to expedite processes and show quick results.

UNP Ravi Karunanayake said the SEC had tried hard to suppress information on the investigations. "There is an attempt to sweep these under the carpet," he told The Island Financial Review.

"We kept pushing the SEC officials to tell COPE if there was any progress made in investigations. We were told the AG had been referred for clarifications. But the SEC is the regulator, we wanted to know what the outcomes of their investigations were. They were given a week to submit a report," the UNP MP said.

"We (COPE) also asked the SEC what was being done to rebuild investor confidence in the stock exchange, we expect a report on this as well," he said.

Karunanayake said Acting SEC DG Dr. Dissa Bandara found it difficult to answer many of the questions posed by COPE. "He was not confident before us and kept turning towards commission members of the SEC, this was probably why he tended his resignation."

"I have handed over the resignation letter," Dissa Bandara told Reuters last week. "I will resign with effect from May 27 and the resignation is based on my principles and the present set-up."


Director - Equity Analytics
Director - Equity Analytics
Mar 26, 2013 (LBO) - Outgoing head of Sri Lanka's Securities and Exchange Commission said the watchdog had completed 90 percent of pending investigations on securities fraud and legal opinion has been sought for the rest.

In a statement released by the SEC signed by Hareendra Dissabandara, who was initially appointed acting director general who quit on "principle" last Friday said he was made director general on September 01, something which was not widely known in the market.

"We completed almost 90 percent of the all investigations which were pending at the time I took over as the Director General except a few where the Attorney General's clarification has been sought," he said in the statement.'

During the margin-credit driven stock market bubble which later collapsed allegations of securities fraud was rife, where fundamentally weak illiquid stocks were pushed up and dumped on less sophisticated investors.

Foreign investors also sold out as stock valuations rose above the prices seen in better regulated more stable economies.

As stocks fell to realistic level, many retailers who burnt their fingers have left the market.

But foreign investors have since returned to the market, and with some stocks more attractive levels and at a discount to some regional markets.

At the time attempts by the SEC to halt the bubble through credit limits and price ceilings were met with stiff resistance by market participants.

Many brokers were also left with bad loans after the bubble collapsed. Sri Lanka and the rest of the world have seen many similar bubbles, where securities fraud also increased.

The world's first SEC, in the USA, was created after the collapse of a stock market bubble that preceded the great depression, that was fired by money printing of the US Federal Reserve.
At least two SEC chairmen have resigned over attempts to probe securities allegations over the last three years amid a general decline of rule of law in the country.

Dissabandara said he was seconded to the SEC from Sri Lanka's Sri Jayewardenepura University in 2008. During his tenor he had introduced education and training, a qualification framework for the capital markets.


The Securities and Exchange Commission (SEC) came under heavy criticism by the Committee on Public Enterprises (COPE) last week for its inaction to control what former chairman Tilak Karunaratne termed as the stock market mafia, sources said.

It was revealed at the COPE inquiry that the SEC has not taken any remedial nor legal action following the much publicized investigations on market manipulations and illegal transactions in the SEC in May last year.

A parliamentary source said the SEC was summoned before COPE for a re-examination last Thursday when inquires for 2012–2013 were concluded.
The SEC had three chairpersons within a one year period. Ms. Indrani Sugathadasa resigned after serving as the chairperson for less than two years. Mr. Karunaratne was appointed to the post but he too resigned saying he was unable to carry out his duties because of pressure from various quarters.

Under Mr. Karunaratne the SEC initiated investigations into the suspicious activities such as insider dealings, front running of shares and suspicious share transactions and market manipulations by nearly two dozen companies listed in the stock exchange at the time “The SEC has issued warnings to some establishments and imposed fines on several others following the findings of the Surveillance Division (SD). The SD also pledged that the SEC would take legal action against those who manipulated market transactions for their benefit. But the COPE had found that no action had been taken in this regard or taken measures to amend the SEC act as instructed by the COPE.

The source said the SEC was extensively questioned on the delay in submitting its amendments to the SEC Act. Like the two previous chairpersons, the incumbent Chairman Nalaka Godahewa too admitted the inadequacy of the law to effectively counter and detect frauds and manipulation in the stock market by certain stock brokers, who are operating as a mafia. The delay in the SEC to take legal action against identified perpetrators was also questioned.

The wide discretionary power exercised by the investigating arm of the SEC in the absence of proper criteria, the absence of or decline of detections, mitigating punishments to the offenders and compounding of cases under the new management was criticized by the COPE members, the source told Daily Mirror yesterday.

COPE Chairman and Senior Minister D.E.W. Gunasekara at one stage quipped, “We are quite aware of what was going on in the stock market. We know what made the previous Chairmen to quit. Your job is a risky one. Bring in the amendments to the Act and strengthen yourself. We are there to help you. Fearlessly expose the culprits and give them deterrent punishment. Then only the investors will have confidence in you.”

It is interesting to note that the SEC Director General Harendra Dissbandara tendered his resignation on Friday after he appeared before the COPE the previous day. (Sandun A. Jayasekera)

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