Markets regulator and the art of consistent inconsistency - Business Standard In October, a company, its promoters and its shareholders bore the brunt of an order issued by SEBI on the matter of disclosures in an Initial Public Offering (IPO), while merchant bankers walked free. In November, merchant bankers got the stick, while others went scot-free on Sebis another order on the same issue. Are we in the Wild West, where rules changed according to the names? In the first case, the company, DLF, its promoters and key executives were found guilty of not disclosing litigation with an outsider in its offer documents. The order described the role of merchant bankers, but did not give any direction against them. In the second case, in which the order came last week, the six merchant bankers of rating agency Credit Analysis Research (CARE)s IPO were fined a sum of Rs 1 crore for their lapses in disclosures. In the 86-page order issued on Friday, Sebis Adjudicating Officer Anita Kenkare said, While making disclosures in the red herring prospectus, the lead managers cannot pick and choose some material facts that they prefer to disclose and suppress some material facts. The lapse in disclosures was in respect to communication between the company and the Reserve Bank of India (RBI) with regard to shareholding of non-resident investors. In their defence, the bankers said they had applied diligence while working on the IPO prospectus. They further said the non-disclosure caused no loss to the investors. However, unlike in the DLF case, the order is largely silent on the role of the executives of CARE. Though CARE does not have a promoter-shareholder post-IPO, it was originally promoted by IDBI Bank, which is majority-owned by the Union government of India. IDBI, Canara Bank and SBI together own close to 33 per cent in the company. In a separate development, a BSE notice on the day of the Sebi order on CARE said, Navin K Jain, company secretary of the company has resigned. Scapegoat or safe passage? While the order on DLF took seven long years to come, the CARE order took less than two years. CARE IPO hit the bourses in December 2012. This could also mean that Sebi has better lever to prosecute merchant bankers, who are registered with it, than corporations. Arun Kejriwal, a senior analyst who specialises in primary market matters, digs out several other elements of the regulators consistency in inconsistency. He points out how the order on DLF was issued by the whole-time member, while the CARE order was by a junior officer. Even in the action against the merchant bankers, there is inconsistency in the sense that disclosure-related offences of smaller merchant bankers were viewed more seriously, when Sebi had cracked down on a slew of IPOs in 2011. The Fridays order also lists out several past transgressions by these bankers and the warnings issued by the regulator. Considering that this was not the first offence, is the punishment commensurate? What is Rs 1 crore collectively for six merchant bankers? At least they should forfeit the fee they earned, said Kejriwal. The only consistency in these cases is that the poor IPO subscriber, who was duped by the inadequate disclosures, did not get a penny in compensation. He deserves his money back with an interest of 15 per cent per annum and should get to keep his shares too. business-standard/article/markets/markets-regulator-and-the-art-of-consistent-inconsistency-114120101396_1.html
Posted on: Tue, 02 Dec 2014 09:09:56 +0000
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