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Tue, 02 September 2014 06:04:48
Sri Lanka insider dealing crackdown urged after Rajaratnam conviction
15 May, 2011 19:57:00
May 15, 2011 (LBO) - The conviction of Sri Lankan-born fund manager Raj Rajaratnam for insider dealing has led to calls for a crackdown on the practice said to be rife in the island's own stock market, a report said.
"Most investors in Sri Lanka trade on inside information," was how the Sunday Times newspaper headlined a story on insider dealing on the Colombo stock exchange.

Many of the investors in the Sri Lankan stock market trade in shares based on inside information but regulators are scared to take these offenders to task, the newspaper quoted stockbrokers as saying.

They were reacting to the announcement that billionaire Galleon hedge fund manager, Raj Rajaratnam was found guilty by a US court for insider trading. Rajaratnam, who faces a lengthy prison term, is to appeal against the verdict.

The newspaper said that in Sri Lanka stock market offenders are not prosecuted and jailed and top businessmen and investors caught breaking the law can get off by 'compounding' their offence and paying a fine with no admission of guilt.

"The Securities & Exchange Commission (SEC) law needs more teeth,” it quoted as stockbroker as saying.

The paper quoted Channa de Silva, a former Director-General of the SEC and chief executive of LR Global Lanka Asset Management Co as suggesting the need for an institutional framework to allow whistle-blowing.

“The law needs to be strong and be a deterrent to this kind of activity,” de Silva told the newspaper, adding that Rajaratnam’s conviction is a lesson for regulatory and exchange authorities, and the investor.

The Sunday Times also quoted J C Weliamuna, former Transparency International Sri Lanka Executive Director, as saying in most cases there was a pattern in insider trading.

“In the US, the regulator means business while in Sri Lanka all officials or appointees to regulatory bodies are directly or indirectly related to business," Weliamuna said.

"In such a situation they don’t want to stop insider trading as they are dealing with friends, colleagues and politicians.”

The media is also under pressure from the corporate community to suppress bad news about companies, the Sunday Times also said in a separate comment.

"Big advertisers regularly using the tool of advertising to either hide the facts pertaining to their companies - despite proclamations of governance, transparency and accountability in their annual reports – and threaten to pull out advertising if the media runs stories adverse to their company," it said.

"Like all newspapers, we too learnt the bitter lesson that even Supreme Court judgments against corporate Sri Lanka is too ‘sacrosanct’ to be commented on, if it's not in favour of corporate bosses!"

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READER COMMENT(S)
8. Investor May 19
Trading on material nonpublic information, which is illegal in most jurisdictions, erodes confidence in capital markets, institutions, and investment professionals and promotes the perception that those with inside and special access can take unfair advantage of the general investing public.

- CFA Institute, USA

7. Navin May 19
Trading on non-public information.
6. owllll May 19
WHAT exactly constitutes insider trading?????
5. Navin May 17
This pattern of behavior is an open secret within the investment community and as investors we all know very well how share prices move vigorously just before financial statements are made public.
4. Harsha de Silva May 17
Rajive: I fully agree with you that Sri Lanka is fast becoming a den of thieves. However, I don't agree with you that the white collar criminals at the CSE should be ignored. If you trace the points you will see the two are connected; that corrupt politicians and officials who are robbing the country are doing it together with the criminals in the CSE who are in turn given cover by the politicians and corrupt officials. It is as sick as it can get. You can be sure I will continue to bring these matters up in Parliament (as I have the attempted CCC land privatization on the sly to a and the sale of land to CATIC) with the intention of stopping, or at the least reducing the massive day-light robbery that is taking place in Sri Lanka.
3. Rajive de Silva May 16
Harsha, there are far worse things happening in Sri Lanka, than insider trading, that must be stopped. Capital market irregularities need not be a priority at this stage.Stopping corruption at a national level is far more improtant than catching a few white collar criminals. May be you should also talk about these things in the Parliament.
2. Harsha de Silva May 16
Many have raised this issue in the recent past and much has been written on it including in LBO. In fact I brought it up in Parliament on several occasions with no response from the Finance Minister or his Deputy.

With the Central Bank violating all codes of good governance (including its very own code of conduct) in investing in the CSE particularly with respect to shares of commercial banks (clear conflicts of interests due to insider information) the issue has taken even greater significance. The continuous defense of this unethical action of the Central Bank (EPF) by the very people who should never let this kind of thing happen has not only surprised many market watchers but led to numerous questions on how dirty this game is being played by some.

As a matter of fact we were assured that the SEC was to install surveillance software to catch these white collar criminals rings. We were even told that the software can trace with retrospective effect trading patterns. But nothing has happened. It was ironic to read recently that the Chairperson of the SEC had announced that she was very happy with the way things are turning out at the CSE!

The CSE has an important role to play in the development of Sri Lanka. The SEC is there to ensure that the CSE is not misused by a few criminals for their illegitimate money making schemes at the expense of the vast number of innocent small investors and at the expense of the fundamental development objective of the CSE.

It is time that the Ministry of Finance, the SEC, the CSE, the auditors and the media and other stakeholders take urgent action to eradicate this crime in Sri Lanka.

1. karu May 16
Very good, just what the CSE needs to do-a fair playing field for all investors. I saw a few board members/direcotrs who are serving in more than 10 different boards. Now that is what is called insider trading.