Is SEBI taking correct steps to prevent the fraud in stock markets?
SEBI (Security Exchange Board of India), is the key statutory organisation to form the rules and guidelines for Stock Markets.
SEBI has the powers to guide the stock markets and make new rules.
Recent scam in stock markets have again raised the questions regarding credibility of SEBI.
My some doubts on SEBI are:
- Is SEBI an another corrupted government office.
- Are SEBI officers actively involved in the scams.
- Despite of having lot of powers, why SEBI is not able to prevent the share market scams.
- Many companies are listed on markets and most of these companies sunk the investor's money, how can SEBI clear the way for these companies to get listed.
- Does SEBI scrutinize all documents?
- Are financials scrutinized by SEBI on random basis?
- Do SEBI have rules which punish even the AUDITORS of company, incase financials are manipulated.
These are obevious questions that may come to any investor's mind. Being so powerful organisation why investors loose money (due to fraud companies).
SEBI is not clean, i think so. But everyone have some limitations and even SEBI has it.
We have the police but still crimes happens, police cant be everywhere and every moment. In similar way SEBI can not track each and every activity in markets.
Generally when we want a loan from banks, we manipulate out papers. Companies to get listed does the same things.
Except Supreme court and CAG, every organisation is corrupted in India. SEBI being the top on investment cycle, is the most revenue generating source for corrupted officers.
SEBI has the powers which can enable it to prevent all sort of frauds (Not at transaction levels). Frauds commited by individuals at transaction levels can not be stopped by any organisation, those who want to do fraud will find it. For example, documents for Demat are specified but if brokers are greedy they will open accounts without documents too.
I agree with one point, all financial statements are signed by Auditors. If auditors are made equally responsible for manipulation of financials than frauds can be reduced.
I will discuss all other points later.
Being a Chartered Accountant i will come to the Point 7.
Audits of companies are performed by Chartered Accountants. ICAI have issued strict guidelines and have rules for CAs.
SEBI is the authority to safeguard the interests of Investors. SEBI have not framed the rules which specifically covers the role of Chartered Accountants. But the powers given to SEBI are huge and SEBI can investigate any person or entity associated with wrong doing.
The Satyam fraud was a good example of How Chartered Accountants can be called responsible for wrong happenings by vaious laws.
PWC challenged the investigation of SEBI, but high court rejected the arguments of PWC and established that SEBI works for interests of investors and investors rely on financials to invest, Auditors are indirectly associated with decision to invest.
The case law can be read here (PWC vs SEBI).
The decision of case in nutshell is:
You can refer the full case analysis here.