SEBI nails Sterlite, Videocon for rigging prices and then sits pretty
SUCHETA DALAL

MUMBAI, FEBRUARY 5: As in the case of the BPL price rigging case where the company's promoters were implicated, SEBI's investigation into Sterlite and Videocon's price rigging allege much the same modus operandi -- Harshad Mehta aggressively bid up prices through front companies, and both firms transferred funds to him through various channels. While both firms deny the allegations contained in the SEBI report -- yesterday, The Indian Express paper reported the Harshad-BPL connection -- the stock market regulator has sent its report detailing the nexus to the finance ministry in New Delhi. Between April and June 1998, Videocon's scrip rose from Rs 51 to 168, while Sterlite's moved from Rs 272 to Rs 385.

THE STERLITE SAGA: Sterlite's shares began to move up around the time it attempted takeover of Indal through an open offer in February 1998, of Rs 90 a share. With Indal then making a counter-offer, this was revised to a hefty 221, which was part cash and part Optionally convertible redeemablepreference shares (OCRPS). The problem was that it promised a minimum conversion price of Rs 350 and to make that offer credible and attractive to shareholders, the price needed to be rigged to that level by around April 1998. That it collapsed to Rs 175 when the bid failed only proves that it was rigged, says SEBI.

SEBI found that Harshad Mehta's Damayanti Group of companies had cornered a large chunk of Sterlite's floating stock. It found direct evidence through a hand written note of Harshad Mehta at his office at 1208, Maker Chambers V. This led SEBI to El Dorado Finance, a stock broking firm which had purchased three lakh shares of Sterlite with, according to SEBI, Rs 11.75 crores provided by the Sterlite management as a loan routed through its associate company MALCO. El Dorado bought Sterlite shares as a negotiated deal but could not provide names of sellers. SEBI however traced the sellers as brokers who held positions for Harshad's Damayanti Group. Narayan Raman, vice-president investor relationswith Sterlite, however, denies that any such loan was made by Sterlite, or that any negotiated deal was made for purchase of Sterlite shares.

SEBI also found that the BSE office bearers, who were clearly in the know of Harshad's manipulations had approached Sterlite to bail out brokers. Though the deals were done by Dil Vikas Finance, SEBI discovered that the shares were delivered to Sterlite's associate MALCO. Raman denies that any shares were ever delivered by Dil Vikas to Sterlite.

The fact that only brokers connected with the Damayanti Group were bailed out, only corroborates the nexus between Harshad, the Sterlite management and the El Dorado/Dil Vikas companies, says SEBI.

THE VIDEOCON SAGA: In 1998, Vidoecon made a big splash by offering to buy two per cent of its outstanding shares at Rs 140 against a market price of Rs 62. A few days later, as the scrip started to soar, they revised the offer and offered an even higher Rs 165 per shares. At that time SEBI took the view that it would notinterfere in a legitimate creeping acquisition even though the high offer price was distorting the market price of the share. The illiquid Videocon GDR also soared from $1.45 to $2.66 and electrified the stock market.

SEBI investigations, now made available to the Finance Ministry, reveal that again Videocon International had made a hefty Rs 10 crore available to Harshad Mehta's front - the Damayanti group - to build positions in the scrip and corner floating stock. Videocon International, says SEBI, routed the funds to the Damayanti Group through ``myriad transactions and several bank accounts'' through its group companies such as Videocon Petroleum, Dombell Investments, Chambal Investments Pvt. Ltd, Balganga Investments, Rajbal Investments, Joy Holdings, Equity Investments, Gandak Investments.

The modus operandi was simple. Videocon group companies purchased illiquid shares in `spot deals' and each time the counter party supplying the shares was the Damayanti Group. The transactions were not reported tothe stock exchange. There was no genuine purchase of shares and the cheques from Videocon group entities were issued without specifying the payee. SEBI says that this arrangement was clearly just an arrangement to create an alibi for transfer of funds to Damayanti Group entities.

The cheques were signed by top officials - Hegde and S K Shelgikar who are authorised signatories for Videocon and some of its entities. All the routing transactions took place almost on the same day. Both Hegde and Shelgikar told SEBI that they did not know the brokers and had acted on the instructions of Venugopal Dhoot, Managing Director of Videocon International. Dhoot in turn also denied any knowledge about the brokers.

In a faxed reply to this paper, Dhoot flatly denied any price rigging in collusion with Harshad Mehta or his associates. Dhoot said that his lawyers had told him that, at an appropriate forum, and under the due process of law, they would be in a position to establish that they had not violated any law orguideline of SEBI. Dhoot said that he had asked SEBI chief D R Mehta for a copy of the report sent by him to the Finance Ministry.

According to SEBI, the documentation of the share deals was obviously not perfect and it found instances where brokers acting for Damayanti had sold shares to some of the Videocon group companies, but payments for the shares were made to some other brokers. All this was again under instructions from the Damayanti Group.

When the bubble burst, several brokers acting for Damayanti could not meet their liabilities and were bailed out through the infamous arrangements supported by the BSE top brass. In the Videocon case, the bailout came from a group of brokers Madhukar Seth & Co, Jaysukhlal Jagjivan, Springfield Securities and Ventura Securities. Again this was done by opening up the trading system late in the night and syconchronising the buyers and sellers deals on an all-or-none basis at pre-determined rates.

Again, SEBI points out, Videocon had provided Rs 20 crore for thepurchase of these shares through Joy Holdings, one of its group companies named above. Joy Holdings ostensibly gave loans and inter corporate deposits to brokers to fund the purchase of its shares. It had a buy back arrangement with the brokers at a stipulated price. Significantly, Joy Holdings kept custody of the shares. SEBI concludes that this was a ruse to circumvent Sec. 77 of the Companies Act which prohibits a company from buying its shares.

Copyright © 2000 Indian Express Newspapers (Bombay) Ltd.