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Large-scale manipulation led to stock scam: JPC

Blaming last year's stock scam on large-scale manipulations like diversion of funds and fraudulent use of bank funds, the Joint Parliamentary Committee looking into the scam says lack of action on the report of the 1992 scam (Harshad Mehta) emboldened wrongdoers to indulge in financial misconduct.

"This scam is basically the manipulation of the capital markets to benefit market operators, brokers, corporate entities and their promoters and managements," the JPC inquiring into the stock scam and temporary freeze on UTI's flagship scheme US-64 said in its draft report to be finalised soon.

The JPC observed that these activities went largely unnoticed while the stock market was rising and there was inadequate attempt to ensure that this was not due to manipulations and malpractices. During the precipitous fall in March 2001, the regulators showed greater concern.

"It is the considered view of the committee that the lack of progress in implementing the recommendations of the last Joint Parliamentary Committee set up in 1992 to enquire into Irregularities in Securities and Banking Transactions, emboldened wrongdoer and unscrupulous elements to indulge in financial misconduct", it said.

The matter was further compounded by a lack of urgency amongst the authorities in checking them, says the report.

"The constitution of the special cell to investigate the nexus between brokers and industrial houses in pursuance of the recommendations of the previous committee have gone defunct without any tangible findings coming out", the report said adding "remedial action is one of the glaring examples of apathy on the part of different agencies".

"The committee expresses its grave concern in the way the supervisory authorities have been performing their role and exercising their regulatory responsibilities".

"That the regulatory bodies failed in exercising prudent supervision on the activities of the stock market and banking transactions became clear during the course of evidence taken by the committee", it said.

The committee said, in its view, no financial system can work efficiently even if innumerable regulations are put in place, unless there is a system of accountability and close cooperation in the working of different agencies of the government and the regulators.

Stating that the main sufferer of the scam is the small investor, the JPC said certain banks including private and cooperative, stock exchanges, overseas corporate bodies and financial institutions were "willing facilitators" in this exercise.

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