Shankar fights back

Head of brokerage firm files writ against regulator after being prevented from leaving the country.

In the latest development in an ongoing - and increasingly dramatic saga - India's First Global has filed a high court writ against its own regulator, SEBI.

Those who read FinanceAsia's article last week (see related article) will know that First Global is one of the brokerage firms that has been banned from trading by the Securities and Exchange Board of India (SEBI). Indeed, along with CSFB it has been banned from making a trade since April for its alleged role in the stock market "crash" of March 2.

Deprived of its ability to trade - without having been proven conclusively guilty - First Global has slowly been going to the wall. It has had to make most of its staff redundant.

And now it has become increasingly vocal. Its boss, Shankar Sharma reckons it is being victimized because of its shareholding in the media organization tehelka.com. It will be recalled that tehelka hit the headlines in March when it singlehandedly exposed the corruption in Indian defence procurement - a move that nearly led to the fall of the government.

Its latest writ with the Mumbai High Court will probably do it very little good, but seeks to keep its cause alive in the public mind. It is asking SEBI to give it complete authenticated data and to fully explain concepts that it is being accused of and make clear its full allegations.

Says First Global in a communication with FinanceAsia: "First Global has demanded that exact allegations be made rather than mere statements like 'First Global did large transactions in XYZ stocks,' 'First Global sold on Feb 15 Rs X crores' etc, which are the so-called allegations made by SEBI. How mere buying and selling within rules, become allegations, has never been explained by SEBI.

"Further, SEBI has never specified which particular rules have been contravened, merely repeating for nine months that 'could have depressed prices', 'may have been manipulative', 'could have definitely led to a fall' etc. Even using the term conjecture is too mild for these colourful terms."

First Global's writ also demands that SEBI defines what the term 'circular trading' means, one of the key concepts it is accused of violating. It says: "Till date, SEBI has refused to define the term 'circular trading' - quite convenient, because it can then continue to term practically any concomitant trade thus - an arbitrage trade, a broker-to-broker transfer trade, or a BSE-NSE-BSE transfer trade."

The writ is the latest move in First Global's PR campaign to prove its innocence. Last week, FinanceAsia summarised a public document the firm has released explaining its innocence and attacking SEBI in no uncertain terms.

In a country where systemic corruption is rife, and the only truly 'good guy' may have been Mahatma Gandhi, it is difficult to be clear on who is guilty and who is lying in allegations relating to events in March. Nevertheless, First Global's beleaguered boss is seeking to turn this into a good versus evil battle centred on the tehelka situation.

After FinanceAsia published its article last week, we arrived at the office to find an email from Sharma that further piqued  our interest with its opening: "Thanks for your mail and our apologies for the delay in responding. You see the police tried to arrest us on trumped up charges and then settled merely for harassing us for two days."

The incident in question relates to Sharma's detention at the airport when he tried to leave India to fly to London. At around 10.30pm on September 25 he tried to board Sabena SN226 to Brussels only to be stopped by an immigration officer who accused him of tax evasion.

He was refused entry to the plane, kept in detention and prevented from making phone calls.

At around 5am, a director of income tax arrived at the airport with a search warrant, although Sharma says no evidence was found of unaccounted assets being transported out of the country.

Sharma says he has been harassed for income tax evasion since March 23, and this was the latest of 13 raids "including on my 70 year old mother" that have so far come up with "ZERO undisclosed assets".

However, the authorities allege that he has evaded tax to the tune of $30 million and has used two of the world's biggest fund managers (one begins with a P and the other with an I) to help launder the money.

Says Sharma: "In February/ March 2000, we did a secondary issue for HFCL, a telecom group. The pricing of the stock was Rs1050, and by the time the stock got delivered to the foreign institutional investors, the price had shot up to Rs2000 or so. The tax guys are now accusing us of having evaded income tax to the extent of nearly $25 million (the difference between the placement price and the market price when the stock was delivered), and that basically these funds have paid off these moneys to us illegally somewhere! The foreign institutional investors are the ones I mentioned above. So now in its desperation the government is accusing these major funds of being fronts for us, to help us launder money."

Of course, Sharma's explanation for all this is that he and his firm are being penalised for their role as shareholders and financiers of tehelka.com.

Whether or not this is true, one thing is certain: deprived of its ability to trade, it is only a matter of time before First Global goes bankrupt, whether or not it is conclusively proven guilty of market manipulation.

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