How Stockguru reveals underbelly of unregulated financial sector

The Securities and Exchange Board of India's order in the Stockguru scam should serve as an eye opener for the capital market regulator itself.

The Sebi, in an order posted on its website on Friday, said fraudster company Sotckguru and its promoters should return Rs 1,500 crore and an interest of 15 percent per annum to 2 lakh investors from whom the amount was raised.

It has also barred the promoters and the company from accessing capital markets for 10 years.

If the probe is done in right earnest, it will once again reveal the dirty underbelly of an unregulated segment in India's financial sector.AFP

The action is indeed in the right direction, but too little, too late.

For beginners, the case is as follows. SGI Research and Analysis (Stockguru), incorporated in June 2010, had allegedly issued preference shares of Rs 10 each at a premium of Rs 1,500 per share.

It had promised prospective investors that the shares would be listed after Sebi's approval and the listingprice would be around Rs 2,000 per share.

The company had said the subscription for the preference shares would remain open from October 2010 to January 2011, according to the Sebi order.

Lokeshwar Dev, promoter and director of SGI, "vanished along with his entire staff" after raising more than Rs 1,500 crore.

The fraudster and his wife went missing in 2011, with investors flooding the police with complaints about the company.

The police finally arrested Lokeshwar Dev and his wife in November this year and a CBI investigation is on into the case.

Interestingly, Sebi's order demanding disgorgement of the amount raised comes amid this.

There is no reason to believe that the Sebi order is going to be of any help to the victims of the scam. How is the watchdog going to recover money from the perpetrators of the scam, who are now under the custody of the CBI?

Victims of the scam are unaware of the Sebi order.

"I have no idea about such a move by Sebi. If at all they have ordered something like this, how are they going to implement? Where or who is holding so much of money? Whom should we approach now?" asked Ankur Sachdeva, one of them, who took the initiative to set up an online platform for those duped by Stockguru.

He, however, was pleasantly surprised to know about the Sebi order. He did not even know that Sebi was one of the regulators whom they could have approached.

He is now planning to go to the Delhi police seeking advice.

Ankur's ignorance about Sebi and the role it plays has pointers to its failure as a market regulator. It is not yet a force that lay investors reckon with.

Why this disconnect? It is easy to find out an answer, if you read the story of Stockguru closely.

Everything about Stockguru and its magical scheme was in the public domain right from the beginning.

An article in Moneylife had in 2010 warned investors against the dangers of the scheme.

According to the article, Stockguru was assuring a whopping 120 percent return on investment in a year. It also had a binary plan of 27 levels, which offered an additional 3 percent return.

Again in 2011, Moneylife reported about the company's shady practices. But Sebi did not take any action.

Moreover, to think that Sebi has finally taken a corrective measure at least now would be a mistake. It was actually forced to act after investor associations took up the matter in their last meeting with Sebi officials.

A report in the Business Standard on 25 December had said that Midas Touch Investors Association raised the issue at the meeting.

"The media had reported about as early as December 2010. Since Stock Guru was offering advice and services relating to the securities market, Sebi should have acted on these reports and representations. It was obligatory upon Sebi to take action to nip the problem in the bud," Midas President Virendra Jain was quoted as saying in the report.

No further evidence needed for Sebi's callous approach to investor grievances.

More skeletons

According to a PTI report today, Yogendra Mittal, an officer on special duty (OSD) in the office of chief commissioner (income tax) Delhi, has been

removed from the finance ministry after CBI carried out raids at his properties on charges of allegedly taking bribe during a probe into the Stockguru scam.

The officer was booked for criminal conspiracy and under Prevention of Corruption Act. It was alleged that the officer led searches against Stock Guru with the intention of extracting illegal gratification, CBI had said.

Mittal had conducted search operations at various locations in connection with Stock Guru scam during January 2011 but they were allegedly not genuine.

CBI searched Mittal after allegations by Lokeshwar Dev that the IT official had walked away with Rs 40 crore from his Rewari residence besides paying a bribe of Rs 15 crore for diluting a case against his company.

CBI now plans to confront Mittal with Lokeshwar Dev.

As allegations and counter allegations fly, one thing is sure-there are more skeletons hiding in the Stockguru closet.

And, if the probe is done in right earnest, it will once again reveal the dirty underbelly of an unregulated segment in India's financial sector.

With inputs from PTI

Updated Date: Dec 20, 2014 21:00 PM

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