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Rathi to challenge Sebi show-cause notice on violation of conduct code

Priya Ganapati in Bombay

Former Bombay Stock Exchange president Anand Rathi will challenge the final show cause notice sent to him by the Securities and Exchange Board of India that has found him guilty of the violation of the code of conduct for brokers.

Sources close to Rathi said that the conclusion by Sebi enquiry officer, Piyush Datta, is at loggerheads with his own findings that Rathi is not involved in any form of insider trading.

"If he has been cleared of the charge of using the information to manipulate markets, how can they say that he is guilty of violating a broker's integrity? The information asked was in the course of discharge of his duties," said the source.

Rathi was charged by Sebi for his alleged involvement in insider trading based on his conversation with the officer in surveillance department of the exchange during the market hours to seek certain price sensitive information.

Sebi had then ordered an enquiry into the affair which lasted for six months.

While exonerating him of the charges of insider trading, Datta has said that Rathi is guilty of violating a broker's integrity by seeking out price sensitive information.

Sources close to Rathi challenge this. "They (Sebi) spoke to over 3,000 brokers and stock exchanges across the country and even Income Tax officials, but have found no evidence. Merely saying that there has been a violation of integrity without supporting facts proves that they are on very weak legal ground," the source said.

Rathi will send his reply, challenging the finding, to Sebi within 3 weeks. A decision will be then in two weeks after that by the Sebi board.

If found guilty of the violation of the conduct of brokers, Sebi could ban Rathi from holding any position in any capital market related institution for up to two years.

The enquiry report also suggests that three of his companies be suspended for nine months with retrospective effect from March 12, 2001.

Rathi and his group are not prepared to give up the fight so easily. If the Sebi board accepts the recommendation, they are willing to take the fight to the higher courts.

"If Sebi persists with the recommendation, we will challenge it in the appellate tribunal and then the high court. So far they have not gathered any evidence, yet they are sticking to their guns that he (Rathi) is guilty in some form, which only shows the futility of the case," his company sources said.

While putting on a brave front, company officials admit that they have little hope that Sebi will give in to their pleas. They believe that by the time Sebi will persist with its decision only to ensure that they have something to show in terms of action taken.

"Sebi will agree to the recommendations. They know that it will not have much of an impact on our companies as the ban, even if invoked, will end in another two months. But they will find Anand Rathi guilty just to make a scapegoat out of him. Else Sebi will end up with egg on its face," claimed a source close to Rathi.

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