Mumbai: Market watchdog Securities and Exchange Board of India (SEBI) has initiated an investigation into possible front-running and insider trading in shares of over two dozen companies, including some blue chips, by entities and persons involved in the housing-finance scam unearthed by the Central Bureau of Investigation (CBI).
The initial findings, when corroborated with the charges made by the CBI, indicate towards a lage-scale front-running deals or shares being purchased or sold in these companies on the basis of prior knowledge about investment decisions being made by large institutional investors, a senior SEBI official said.
These large institutional investors could be LIC, whose Secretary (Investments) figures among those arrested by CBI in connection with the multi-crore scam, as also those investors who participated in share or debt placements arranged by investment banking and financial services firm Money Matters, sources said.
The probe would encompass large dealings and any irregular spurt in volumes or prices of shares of all the companies where these institutional investors had bought or sold shares over the past two years, they said.
The top officials of Money Matters, a fast growing entity that boasts of having served a number of top-level corporate entities in the past including the likes of Tatas, Ambanis and Birlas, have emerged as the focal points of the scam.
Sources said that though the arrested official of the country's largest insurer LIC could have been used (by Money Matters) in terms of revealing the investment decisions already taken by the PSU, he might not have been in a position to know upcoming decisions by the company or influence its investments in stocks.
As LIC is not a listed company and is not obliged to disclose its purchase or sale of shares on day-to-day basis, the names of companies where it has invested or whose shares it has sold generally come to be known with a time-lag.
Besides front-running, the regulator is also looking into possibility of insider trading by the top officials, and in some cases, promoters of the companies whose names have surfaced in the CBI probe.
Given the sensitivity of the matter and the probe being in preliminary stages, the official declined to disclose the names of the companies, while adding that the companies whose shares have been manipulated might not be themselves at fault.
The SEBI official said that the regulator had begun probing insider trading possibilities in many of these companies, even before the arrests made by CBI two days ago, as it had feared irregularities in their share dealings over the past few months.
However, it was only after CBI unearthed the scam that SEBI could relate the alleged insider trading with the accused of loan bribery case.
CBI that earlier arrested at least eight persons in connection with the scam, has also issued notices to 21 companies to provide all the documents related to the case and explain any benefits received by them as also favours extended to the accused persons.
Sources said that SEBI suspected the unscrupulous activities to have begun in these companies' shares at least a year ago, when the stock market was still in dumps and the companies were finding it tough to raise funds due to extremely low valuations.
After shoring up the shares during the days of their distressed valuations, the accused entities could have started selling off these stocks to the unsuspecting investors at high valuations, they added.
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