SEBI vs Investors
| 11/02/2013 10:42 AM | 
SEBI, the market watchdog, displays frigid apathy in addressing investors' complaints. It pays no attention to serious allegations and gives little time to the investor associations it has accredited. When questions are asked, it covers up information and protects everyone but the common investor it was created to protect. Whose side is it really on, asks Sucheta Dalal
EAS Sarma, a highly respected former bureaucrat, having retired as the expenditure secretary of the government of India usually gets a response when he writes to various ministries or regulators. It may be a call (even from the Prime Minister's office), an angry denial from a minister or an empty promise to 'look into' the issue. But he has discovered to his surprise that the Securities & Exchange Board of India (SEBI) is a different kettle of fish altogether. When he writes to Upendra Kumar Sinha, chairman of SEBI, the response is startling.
On 21 June 2012, Mr Sarma wrote two letters to the SEBI chairman about non-disclosure by Reliance Industries of vital information on the true status of gas reserves at the Krishna-Godavari basin. The letter was not even read. It was automatically diverted to Scores (SEBI Complaints Redress System), SEBI's web-based system. Mr Sarma got an automated reply saying that the complaint has been registered and he can seek redress directly from the company.
Mr Sarma was upset enough to write to Mr Sinha: "I am surprised and feel distressed at the mechanical way in which you have dealt with the complaint, apparently unmindful of the likely damage that the said non-disclosure of information by RIL could have already caused and is causing every day to the small investors of this country who have put in their hard earned savings as investment in RIL's equity on the basis of the artificial expectations created by the company on the basis of questionable information."
Mr Sarma quoted the preamble to SEBI Act of 1992 which envisages SEBI as an institution created "to protect the interests of investors in securities and to promote the development of, and to regulate, the securities market…" Mr Sarma's letter continues: "The manner in which you have dealt with the matter I have brought to your notice belies this sacred objective laid down by the Legislature."
Did it make a difference? None. On 19 December 2012, Mr Sarma wrote to the prime minister about the scourge of Multilevel Marketing Companies (MLM) that have been taking "full advantage of the soft regulatory structure to swindle unwary and financially illiterate Indians on a mind boggling scale." The letter was copied to UK Sinha, too. The reaction from UK Sinha was identical to the first one. An automated reply directed Mr Sarma to lodge a complaint on Scores, with a long explanation of the process.
Ironically, the same automated response also said, "all email communication will be considered as general correspondence and not complaint". Since it is clear that the chairman's office is not reading email sent to him, should one presume that what is not directed to Scores goes straight into trash?
SEBI has always been headed by IAS officers. The organisation is surely aware of the deference and protocol shown even to retired IAS officers, especially those who have a clean image. Had it happened once, one would have ignored it as an aberration, but when it happens twice, it reeks of arrogant callousness. SEBI does not even favour Moneylife with an automated acknowledgement (barring two replies in January 2013, including one for this story). What happens to ordinary retail investors when they deal with SEBI and Scores? Here are some examples.
• Sachchidanand Paradkar: "Scores is an eyewash. Before Scores, I used to lodge complaints in physical form, for which I received postcards from SEBI with distinctive numbers. Now I have started receiving registered AD letters, informing me that since I
did not send reminders, it is presumed that these have been resolved and they have been closed out in their records! Subsequently, I had lodged 180 complaints on Scores and not a single complaint has been 'resolved' in the real sense. I spent considerable time and money in lodging these complaints under wrong belief that Scores will redress my complaint. My protests have simply fallen on deaf ears.'' He goes on to say that companies also provide automated responses to complaints, claiming that they are "dutifully observing SEBI regulations." There is no serious effort to resolve greivances and even RTI queries are treated with callousness. He is angry enough to say that, "It will be better to wind up SEBI and save the taxpayers' money for this white elephant."
• Bhalachandra Singde: "Two years ago, I sold out all my mutual fund investment. Now I am seriously thinking of pulling out of the stock market. SEBI does not hear complaints. They simply do the job of the post office. RBI has directed my case against ICICI to SEBI in 2004, but nothing has happened. There is no point in investing in stocks in such a scenario."
• Dr Pankaj Gupta: "SEBI has reduced itself to the role of corrupt Sarpanch, which doesn't have much power to punish powerful but has just enough power to hassle common people." He accuses SEBI's compliance department of pushing him to accept a compromise with a broker without going into issues of fraud raised by him such as alteration of ledgers.
• MM Sundaram: "SEBI will not take the cases of misuse of power of attorney (POA) since they are, at any cost, saving and safeguarding brokers along with the stock exchanges. I have got several POA complaints. In my case I have proved the POA is been misused by the Delhi-based Religare group and I have strongly sought the cancellation of the registration of this brokerage. My complaints to several government departments against SEBI officials have fallen on deaf years."
Of course, SEBI has a different story to tell. For starters, there is the high-power advertising campaign by Ogilvy & Mather with the tag line is 'This complaint window does not have a lunch break, tea break or a closing time.' At the same time, responding to a question by Member of Parliament (MP) Rajeev Chandrashekhar, the minister of state for finance, Namo Narain Meena had said that SEBI had received a staggering 28 lakh complaints. He also claimed that Scores has reduced the processing time of complaints and it was leading to 'speedy redressal'. The minister further said that the government has directed SEBI to take appropriate action on investor grievances and send its reply to the complainants. Has it happened? Let us first examine how Scores works.
No Score
SEBI Complaint Redress System or Scores (http://scores.gov.in) allows investors to lodge and follow up their complaints and track the status of redressal online through a unique complaint registration number, sent through an automated reply mechanism. Market intermediaries and listed companies also receive complaints online and report the action taken to the regulator. SEBI then peruses this action and closes the complaint if satisfied that it is adequately redressed.
While that is the PR line from SEBI, the automated acknowledgement that investors receive is more honest. Let's examine the auto response EAS Sarma's letter about Reliance. Scores gave him a tracking number (Complaint No. SEBIP/MH12/006543/1) and directed him to 'seek redressal' directly from the company. This case clearly shows no attempt to sort or segregate complaints, as we will see in other claims on behalf of the regulator.
Even more cavalier is the wording of the automated response. It says, the complaint has been taken up with the 'entity', which has been asked to respond directly to the complainant. Then there is this gem: "If the complaint is not resolved within a responsible (sic) period of time, our computerized redressal system provides for sending out periodical reminders to the entities, in all cases, without requiring any further reminders to be sent by the investor to us."
In effect, nobody at SEBI will look or worry about this complaint until the process of automated reminders is exhausted. The message to the investor is loud and clear—don't call us; if you want to hassle anybody, write to the 'entity' against which you are seeking redress.
The response letter tells the complainant that "SEBI initiates action against recalcitrant companies for unsatisfactory redressal of complaints "on the whole." Translation: Don't
expect us to chase specific complaints. When we notice hundreds of automated reminders pinging away at certain 'entities', we may wake up and act against it 'as a whole'. Until then, read this—"While SEBI will make 'every effort' for redressal, initiation of action by SEBI does not guarantee redressal of complaint. Please note you have the right to approach a court of law to seek legal redress in the matter". Can somebody tell us which part of this process entails SEBI making 'every effort' to redress the grievance? SEBI would, however, have us believe that this ridiculous mechanism has allowed it to redress a few lakh complaints.
EAS Sarma, a highly respected former bureaucrat, having retired as the expenditure secretary of the government of India usually gets a response when he writes to various ministries or regulators. It may be a call (even from the Prime Minister's office), an angry denial from a minister or an empty promise to 'look into' the issue. But he has discovered to his surprise that the Securities & Exchange Board of India (SEBI) is a different kettle of fish altogether. When he writes to Upendra Kumar Sinha, chairman of SEBI, the response is startling.
On 21 June 2012, Mr Sarma wrote two letters to the SEBI chairman about non-disclosure by Reliance Industries of vital information on the true status of gas reserves at the Krishna-Godavari basin. The letter was not even read. It was automatically diverted to Scores (SEBI Complaints Redress System), SEBI's web-based system. Mr Sarma got an automated reply saying that the complaint has been registered and he can seek redress directly from the company.
Mr Sarma was upset enough to write to Mr Sinha: "I am surprised and feel distressed at the mechanical way in which you have dealt with the complaint, apparently unmindful of the likely damage that the said non-disclosure of information by RIL could have already caused and is causing every day to the small investors of this country who have put in their hard earned savings as investment in RIL's equity on the basis of the artificial expectations created by the company on the basis of questionable information."
Mr Sarma quoted the preamble to SEBI Act of 1992 which envisages SEBI as an institution created "to protect the interests of investors in securities and to promote the development of, and to regulate, the securities market…" Mr Sarma's letter continues: "The manner in which you have dealt with the matter I have brought to your notice belies this sacred objective laid down by the Legislature."
Did it make a difference? None. On 19 December 2012, Mr Sarma wrote to the prime minister about the scourge of Multilevel Marketing Companies (MLM) that have been taking "full advantage of the soft regulatory structure to swindle unwary and financially illiterate Indians on a mind boggling scale." The letter was copied to UK Sinha, too. The reaction from UK Sinha was identical to the first one. An automated reply directed Mr Sarma to lodge a complaint on Scores, with a long explanation of the process.
Ironically, the same automated response also said, "all email communication will be considered as general correspondence and not complaint". Since it is clear that the chairman's office is not reading email sent to him, should one presume that what is not directed to Scores goes straight into trash?
SEBI has always been headed by IAS officers. The organisation is surely aware of the deference and protocol shown even to retired IAS officers, especially those who have a clean image. Had it happened once, one would have ignored it as an aberration, but when it happens twice, it reeks of arrogant callousness. SEBI does not even favour Moneylife with an automated acknowledgement (barring two replies in January 2013, including one for this story). What happens to ordinary retail investors when they deal with SEBI and Scores? Here are some examples.
• Sachchidanand Paradkar: "Scores is an eyewash. Before Scores, I used to lodge complaints in physical form, for which I received postcards from SEBI with distinctive numbers. Now I have started receiving registered AD letters, informing me that since I
did not send reminders, it is presumed that these have been resolved and they have been closed out in their records! Subsequently, I had lodged 180 complaints on Scores and not a single complaint has been 'resolved' in the real sense. I spent considerable time and money in lodging these complaints under wrong belief that Scores will redress my complaint. My protests have simply fallen on deaf ears.'' He goes on to say that companies also provide automated responses to complaints, claiming that they are "dutifully observing SEBI regulations." There is no serious effort to resolve greivances and even RTI queries are treated with callousness. He is angry enough to say that, "It will be better to wind up SEBI and save the taxpayers' money for this white elephant."• Bhalachandra Singde: "Two years ago, I sold out all my mutual fund investment. Now I am seriously thinking of pulling out of the stock market. SEBI does not hear complaints. They simply do the job of the post office. RBI has directed my case against ICICI to SEBI in 2004, but nothing has happened. There is no point in investing in stocks in such a scenario."
• Dr Pankaj Gupta: "SEBI has reduced itself to the role of corrupt Sarpanch, which doesn't have much power to punish powerful but has just enough power to hassle common people." He accuses SEBI's compliance department of pushing him to accept a compromise with a broker without going into issues of fraud raised by him such as alteration of ledgers.
• MM Sundaram: "SEBI will not take the cases of misuse of power of attorney (POA) since they are, at any cost, saving and safeguarding brokers along with the stock exchanges. I have got several POA complaints. In my case I have proved the POA is been misused by the Delhi-based Religare group and I have strongly sought the cancellation of the registration of this brokerage. My complaints to several government departments against SEBI officials have fallen on deaf years."
Of course, SEBI has a different story to tell. For starters, there is the high-power advertising campaign by Ogilvy & Mather with the tag line is 'This complaint window does not have a lunch break, tea break or a closing time.' At the same time, responding to a question by Member of Parliament (MP) Rajeev Chandrashekhar, the minister of state for finance, Namo Narain Meena had said that SEBI had received a staggering 28 lakh complaints. He also claimed that Scores has reduced the processing time of complaints and it was leading to 'speedy redressal'. The minister further said that the government has directed SEBI to take appropriate action on investor grievances and send its reply to the complainants. Has it happened? Let us first examine how Scores works.
No Score
SEBI Complaint Redress System or Scores (http://scores.gov.in) allows investors to lodge and follow up their complaints and track the status of redressal online through a unique complaint registration number, sent through an automated reply mechanism. Market intermediaries and listed companies also receive complaints online and report the action taken to the regulator. SEBI then peruses this action and closes the complaint if satisfied that it is adequately redressed.
While that is the PR line from SEBI, the automated acknowledgement that investors receive is more honest. Let's examine the auto response EAS Sarma's letter about Reliance. Scores gave him a tracking number (Complaint No. SEBIP/MH12/006543/1) and directed him to 'seek redressal' directly from the company. This case clearly shows no attempt to sort or segregate complaints, as we will see in other claims on behalf of the regulator.
Even more cavalier is the wording of the automated response. It says, the complaint has been taken up with the 'entity', which has been asked to respond directly to the complainant. Then there is this gem: "If the complaint is not resolved within a responsible (sic) period of time, our computerized redressal system provides for sending out periodical reminders to the entities, in all cases, without requiring any further reminders to be sent by the investor to us."
In effect, nobody at SEBI will look or worry about this complaint until the process of automated reminders is exhausted. The message to the investor is loud and clear—don't call us; if you want to hassle anybody, write to the 'entity' against which you are seeking redress.
The response letter tells the complainant that "SEBI initiates action against recalcitrant companies for unsatisfactory redressal of complaints "on the whole." Translation: Don't
expect us to chase specific complaints. When we notice hundreds of automated reminders pinging away at certain 'entities', we may wake up and act against it 'as a whole'. Until then, read this—"While SEBI will make 'every effort' for redressal, initiation of action by SEBI does not guarantee redressal of complaint. Please note you have the right to approach a court of law to seek legal redress in the matter". Can somebody tell us which part of this process entails SEBI making 'every effort' to redress the grievance? SEBI would, however, have us believe that this ridiculous mechanism has allowed it to redress a few lakh complaints.__._,_.___
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