Regulations
If Whistle-blowers Want Action, They Have To Interact And Trust
It seems to be an open season for whistle-blower letters these days—at least, at Moneylife. We keep getting one letter after another exposing the dirt on Indian capital markets and companies. Unfortunately, the deep expertise of insiders, and the excruciating detail they go into, will not have the desired impact if the regulator fails to act. What is worse, anonymous whistle-blowers, lacking in courage and suffering from a trust deficit, seldom provide enough evidence of their charges to warrant an investigation by resource-strapped entities like ours. 
 
On the other hand, large media organisations, which ought to be the first destination for such letters, are either compromised by the massive advertising budgets of the target entities, or their journalists are unwilling to alienate powerful people through investigative work. The latter is a valid career consideration for many young journalists because large corporate houses and their communications armies ruin your career prospects and block access and job opportunities, especially when the target is a multinational company. Many international scholarships and fellowships that are decided by consulates and embassies go only to ‘friendly’ scribes. 
 
This long prelude on the hazards of investigative journalism is important, because anonymous whistle-blowers and their cohorts, often, get on to social media (again, behind anonymous handles) and accuse the media of being compromised. It won’t be a surprise if their access to news is only through pre-programmed Google searches and not paid subscriptions to independent media. But, hey, it is a journalist’s duty to serve society by putting his/her life and career on the line to investigate every bit of the half-baked, self-serving piece of information sent out as ‘whistle-blower’ information, right? Unfortunately, it does not work that way. 
 
That a source will hide his identity, initially, is understandable. Ethical journalists never betray a source who puts herself at risk to provide information. But it has to be a two-way street. The best of reports are built on trust and interaction. This is, probably, required even in ‘supari journalism’, where a powerful interested party pays the huge cost of an elaborate sting operation and its eventual, stage-managed exposé. If this weren’t the case, we would have known the source of funding, at least, in a few botched up stings. The code of omertà, probably, prevails here. 
 
On 23rd April, 25 years ago, The Times of India front-paged my report on the Harshad Mehta scam. My key source, who helped corroborate crucial information all through our scam reportage, remains anonymous. Debashis Basu, who covered the scam for Business Today, and I, used to call him DT, short for ‘deep throat’ that we had unimaginatively borrowed from All the President’s Men. DT had got in touch with me in 1991, when I worked at The Economic Times and shared information on how public sector undertakings and banks were colluding with brokers to pass on large sums of money. Since so little was known to the media, or even the regulators and bankers, about the shadowy world of trading in gilt-edged securities or the secondary market for units of the Unit Trust of India (UTI), his constant help, in explaining the information that we gathered, was crucial. I had shared a lot of this information with the then Securities & Exchange Board of India (SEBI) chairman GV Ramakrishna even before the 1992 scam story, including the collusion between brokers and top politicians and Union ministers to route funds into the market. But until Harshad Mehta’s little trick of helping himself to over Rs700 crore from the State Bank of India (SBI) through a non-existent SGL (securities general ledger) receipt was discovered by the Bank, the rest of the information that one gathered was of little value. 
 
Soon after the first exposé, I wrote another report, which put the size of the scam at Rs5,000 crore (a stupendous figure in those pre-liberalisation days) that included UTI units, fake banking receipts (BRs), deals, portfolio management schemes (with PSUs), bill discounting, etc. On the day the report was published, the then Reserve Bank of India (RBI) governor, S Venkitaramanan, called a press conference to deny the report. Such denials by RBI are unheard of even today; in 1992, it was an extraordinary event. I thought it was the end of my career. On checking with DT (since my information had indirectly come from the central bank itself), we gathered that the RBI governor, indeed, had no concrete basis to deny my report.
 
He had probably been asked by the government to issue a denial, in order to soothe worried foreign creditors and others. Armed with this knowledge, a few of us (including a couple of friendly journalists in other papers) grilled the governor, until it was fairly clear that the denial was baseless and my report was accurate. Of course, he got the media headlines that he wanted the next day. Ironically, other publications soon began to report that the scam was three or four times the figure I had quoted. The income-tax (I-T) department also made vastly exaggerated claims of tax dues from all the scam accused—their actions have ensured that trials in the special court, and even some sessions court cases, have not ended after 25 years. 
 
Over to Today’s Scam
We are now in the world of HFT (high frequency trading), where powerful global operators, with deep pockets and access to expensive co-located servers and sophisticated algorithms, generate massive trading volumes in nanoseconds. But the gap between what traders were doing, and what the media or regulators knew, remains as vast as it was in 1992 when banks and brokers devised multiple ways to get around RBI’s tediously slow system of recording government securities’ trades in massive physical ledgers, and banks were fighting computerisation. The difference today is the absence of trust. If the whistle-blowers find it hard to trust journalists, we are equally suspicious about their motives. Maybe they are just protecting their eight-figure-salary jobs and want someone else to do the dirty work of helping clean up the system. Or stand to gain personally. This is the environment in which we chose to fight an important case against the powerful National Stock Exchange (NSE). But it can only go thus far, if whistle-blowers are unwilling to work alongside us, as DT did in 1992.
 
The last two letters I have received about capital markets name a powerful foreign institution that is working around regulation to cream off profits in stocks, currency derivatives and commodities. The latest, from a new whistle-blower, says that a particular foreign institutional investor (FII) is trying to gain back-door entry into Indian commodity trading, by circumventing rules that prohibit foreigners from this market. It has applied for SEBI’s permission through an Indian subsidiary, after having obtained  the foreign investment promotions board’s (FIPB’s) approval. The FII has two entities registered in India. One is a securities trading subsidiary (both Indian subsidiaries have common directors), where the 49% shareholder is an Indian employee of the global firm that is evidently just a front. The majority stake is held by a Mauritius-based entity.
 
Significantly, this FII is mentioned by the NSE whistle-blower as using prohibited Reuters data feeds to get prior information for trading currency derivatives—especially in the rupee-dollar pairs. The FII is notorious globally and has been investigated and sued by regulators in the US, Korea and China. The new letter is addressed to the SEBI chairman and two of its whole-time directors. Will they investigate? One does not know. What we do know is that SEBI sent the first letter from the NSE whistle-blower to the Exchange. Its reply was accepted, filed and the case forgotten until Moneylife wrote about it and opened a huge can of worms, finally leading to NSE’s MD being sacked. 
 
Maybe this, too, will need a rogue algorithm to wreak havoc in commodity prices or currencies which will trigger a public outcry to force a serious investigation. After all, there is only so much that the media can do from outside, if the whistle-blowers want to remain cosily anonymous.

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COMMENTS

KAVIRAJ B PATIL

3 months ago

The present situation is pretty much loaded against the common man. None of the regulators, be it SEBI or IRDAI or the RBI have shown much commitment for the common man. It is depressing indeed and a wonder how Moneylife has carried on for so many years against such odds.

B. Yerram Raju

3 months ago

This article is an excellent recall and my congratulations to both Ms Dalal and DT. Now that you have already initiated similar moves against commercial banks, more particularly, the PSBs, HDFC Bank, ICICI Bank etc., we should continue to blow the whistle until the errand get whip lashing.
Functioning of Clearing Houses across the country and the return of cheques without informing the reasons by the returning branch of a bank to the lodging bank needs an inquest. Customers are penalised for several systemic returns and the cheque returns happen to be one of the parameters for CIBIL rating.

REPLY

Sucheta Dalal

In Reply to B. Yerram Raju 3 months ago

Thank you Dr Raju. We have dealt with it in our cover story on banks, which will be out by Thursday ! But we need to take it beyond that!

Dinesh Thakur

3 months ago

Excellent piece Ms Dalal. My only suggestion, based on my experience prosecuting Ranbaxy in a US court is that if you are dealing with a FII, your chances of success are way higher if you approach the US SEC. They have a functional whistleblower program and I know for a fact that they are very active in this area.

REPLY

Sucheta Dalal

In Reply to Dinesh Thakur 3 months ago

Mr Thakur. I am delighted to hear from you. You have created history with Ranbaxy and I have followed it very closely. I agree with you about the US SEC having a better whistleblower programme. Unfortunately, they fall foul of the Indian rules and the SEC does not look into that. So, unfortunately, we have had to depend on the Securities & Exchange Board of India (SEBI), which has "deep relationships" with NSE and other organisations. The previous two chairmen of SEBI were uninterested. You may like to see our experience with the NSE and the defamation case they filed against us. Fortunately, we got an extraordinary judgement in the Notice of Motion and the NSE was fined Rs50 lakhs. But, the battle is carried on by us.... they have filed and appeal and so it goes on..

Abhijit Gosavi

3 months ago

A terrific as well as an eye-opening piece. Yes, it has to be a two-way street. Like in The Pelican Brief. But that was only a movie.

Simple Indian

3 months ago

Yes, real radical changes in a system always come from within. But, unfortunately, most institutions in India, be in Govt / Public / Private sector, do not have strong internal mechanisms to encourage whistle-blowers to highlight issues within their organization. Even the new Whistle-blower's law doesn't adequately protect the identity of whistle-blowers nor protect their careers. In fact, mostly whistle-blowers are booted out of the organization sooner or later, on frivolous grounds, which is again a deterrent for wannabe whistle-blowers within the organization. But then, when even the PM can't trust his Union Cabinet from leaking sensitive information and gets them to hand over / keep their phones switched off until the PM made his address to the nation on the now infamous demonetization exercise last Nov, what can be expected of lesser functionaries elsewhere ?

Anup Sen

3 months ago

A Brilliant piece. Who was that extraordinary courageous 'DT'? By now, he must have retired from the service. The country must know his identity. Such persons are the real pride of our nation.

Aadhaar: On Section 139AA what is at stake?
The matter of 139AA is not simply about linking the Aadhaar number to a permanent account number (PAN). It is about upholding rule of law and the dignity of the Supreme Court.
 
The Supreme Court’s Orders
The apex court in its orders of 15 October 2015 noted that “We impress upon the Union of India that it shall strictly follow all the earlier orders passed by this Court commencing from 23 September 2013. We will also make it clear that the Aadhaar card Scheme is purely voluntary and it cannot be made mandatory till the matter is finally decided by this Court one way or the other”. 
 
On 23 September 2013, the SC had ordered, “no person should suffer for not getting the Aadhaar card inspite of the fact that some authority had issued a circular making it mandatory and when any person applies to get the Aadhaar Card voluntarily”. In the matter of CRL 2524 of 2014 on 24 March 2014 the apex court had reiterated that “no person shall be deprived of any service for want of Aadhaar number in case he/she is otherwise eligible/entitled. All the authorities are directed to modify their forms/ circulars/ likes so as to not compulsorily require the Aadhaar number in order to meet the requirement of the interim order passed by this Court forthwith”.
 
In its order of 11 August 2015, the Court ordered that Aadhaar may not be used for any purpose other than the PDS Scheme, for the distribution of foodgrains, and cooking fuel, such as kerosene and LPG. This was extended to allow its use for the Mahatma Gandhi National Rural Employment Guarantee Scheme (MGNREGS), National Social Assistance Programme (Old Age Pensions, Widow Pensions, Disability Pensions) Prime Minister's Jan Dhan Yojana (PMJDY) and Employees' Provident Fund Organisation (EPFO) in its orders of 15 October 2016. The court also stated that the information about an individual obtained by the Unique Identification Authority of India while issuing an Aadhaar card shall not be used for any other purpose.
 
On 14 September 2016 in the matter of WP 686 of 2016 the court stayed the operation and implementation of  that or Pre-Matric Scholarship Scheme, Post-Matric Scholarship Scheme and Merit-cum-Means Scholarship Scheme to the extent they have made submission of Aadhaar mandatory.
 
The Supreme Court’s mind on Aadhaar has been unambiguous and consistent.
 
The Attorney General’s Promises
The Attorney General submitted to the court, on 11 August 2015, that to settle the legal position regarding the existence of the fundamental right to privacy, this batch of matters on Aadhaar is required to be heard by a larger Bench. He framed the questions before the bench as – (i) whether there is any “right to privacy” guaranteed under our Constitution. (ii) If such a right exists, what is the source and what are the contours of such a right as there is no express provision in the Constitution adumbrating the right to privacy. In doing so he caused the Court to place these matters before the Chief Justice of India to be referred to be examined and authoritatively decided by a Bench of appropriate strength. 
 
The apex court further noted that the Attorney General stated that the Union of India would ensure that Aadhaar cards would only be issued on a consensual basis, which shall however not be used for any purpose other than a social benefit schemes. The Attorney General also stated that the respondents do not share any personal information of an Aadhaar cardholder through biometrics or otherwise with any other person or authority. This statement allays the apprehension for now, that there is a widespread breach of privacy of those to whom an Aadhaar card has been issued. It was further contended on behalf of the petitioners that there still is breach of privacy. 
 
The Attorney General’s Acts
Despite the directions of the Court there have been hundreds of violations of the orders of the apex court. In 2017, more than 60 gazette notifications have been issued linking various programs with Aadhaar or mandating it. Authorities have not modified their forms/circulars/likes so as to not compulsorily require the Aadhaar number. Aadhaar card requirement has not been kept as purely voluntary. Aadhaar numbers have been used for purposes other than for the schemes permitted by the court. Information associated with the Aadhaar number has been shared with several government agencies as well as private parties. No advertisements, processes, procedures, Memorandum of Association (MOA), technology, framework, API have been amended to ensure explicit, unambiguous and clear steps to comply with the court’s orders. Many government agencies and private companies have been coercing the enrolment for Aadhaar. Crores of people continue to suffer from the Aadhaar.
 
Even while the matter was sub-judice and the apex court orders were explicit about maintaining status quo till the final decision of the Court, The Aadhaar (Targeted Delivery of Financial and Other Subsidies, Benefits and Services) Act, 2016 was introduced on the advice of the Attorney General as a Money Bill. The Act violates the status quo, is preemptive and subverts the petitions pending before the Supreme Court.
 
As if this were not enough, in the WP 607 of 2016 filed by Lokniti praying for a definite mobile phone subscriber verification scheme, the Attorney General filed an affidavit describing “Aadhaar based e-know-your-customer (E-KYC) for issuing mobile connections introduced on 16 August 2016 wherein the customer as well as Point of Sale (PoS) Agent of the telecom service provider (TSP) will be authenticated from Unique Identification Authority of India (UIDAI) based on their biometrics and their demographic data received from UIDAI is stored”. 
 
The Attorney General omitted to mention to the bench that such use of Aadhaar was already a violation of his promise to the Court and the orders of the Supreme Court in the petitions on Aadhaar pending with it. The Court was misled into believing that existing subscribers can be verified in a similar manner and the process will be completed within one year. There was no effort by the Attorney General to either point out to the court its restrictions on the use of Aadhaar or to let the petitioners in the Aadhaar matter and have their say.
 
In March 2017, in a surprise addendum to the Finance Bill, under advise of the Attorney General, the union government introduced Section 139AA. Section 139AA requires linking the PAN card to an Aadhaar number to file income tax returns (ITRs) and allow the PAN to remain valid. This too is in contempt of the orders of the Supreme Court, is preemptive and subverts the process of justice.
 
In testimony of the fears placed before the court and contrary to the promise of the Attorney General to the court, the last two months have witnessed several data leaks that indicate the sharing of UID information across government agencies. The UIDAI continuing to service the partner agencies for KYC and authentication beyond the permitted usage also points to information sharing that is beyond government. As noted by the court, the petitioners’ fears of violation of privacy have been vindicated.
 
Questions of Rule of Law and the Balance of Power
Is the Attorney General above the Rule of Law? Is his word and interpretation law that must go unchallenged? Can the power of the Supreme Court not extend to hold the Attorney General responsible for commissions and commissions? Has the Attorney general used tactics that have preempted and subverted justice? Who is responsible for the national and public interest that may have been compromised in the process? Has the balance of power of the executive and judiciary been upset by the blatant contempt of the courts orders? Do the orders of the court matter to maintain the rule of law?
 
We the people of India have waited patiently and long as the justice, equality, liberty and fraternity promised to us by the constitution is kept from us.
 
(Dr Anupam Saraph is a renowned expert in governance of complex systems and advises governments and businesses across the world. He can be reached @anupamsaraph.)
 

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COMMENTS

Pradeep Kumar M Sreedharan

3 months ago

We are guinea pigs for Western Globalists Money Changers March.

Umesh kaushik

3 months ago

We are in very difficult times, constitutional bodies are being trampled upon, incumbents in High offices belittle the office they hold, very sad.

REPLY

ramanamurty malla

In Reply to Umesh kaushik 3 months ago

Agreed. There are lakhs of NRIs who don't have Aadhar card. How can Government make compulsory for people to get Aadhar number. Supreme Court is Right in saying Aadhar can't be made compulsory for all Indians.

What happens after you buy a stock?

Prof Sanjay Bakshi, professor and value investor, on Saturday enlightened over 600 participants present at BSE with his scintillating and thought-provoking presentation on what happens after you buy a stock. Moneylife Advisory Services, a SEBI-registered investment adviser and part of the Moneylife group, had organised the talk by Prof Bakshi under the Moneylife Investor Club on 22 April 2017. The event organised at the International Convention Hall, was supported by BSE.

The sixth event of the Club and second such by Prof Sanjay Bakshi was a remarkable presentation on issues related post-ownership related decisions on stocks.

The event was graced by a packed audience of over 600, which was testimony to first, the enormous popularity of Prof Bakshi, second, to so many people being interested in long term investing and third, to the wide reach of Moneylife. Though the event was in Mumbai, people from different parts of the country such as Pune, Hyderabad, Secunderabad, Dehradun, Bangalore, Goa and Chennai had come down to attend.
 
The session started with Sucheta Dalal, director of Moneylife Advisory Services explaining the planned objectives of Investors Club. The Club promotes long-term investment and encourage participants to think for themselves independently through seminars, workshops and case studies. It will not offer trading and investment tips, she clarified.

Debashis Basu, director of Moneylife Advisory Services, then introduced Prof Bakshi. He sketched out Prof Bakshi's remarkable journey - his personal and professional struggles after he came back from London in 1994, with Rs3 lakh in savings, lots of wisdom, a daughter and a degree from London School of Economics (LSE) after his professional qualification of chartered accountancy in India. Over the next few years Prof Bakshi struggled to find his feet as an investor, making mistakes, making gains but always learning and sharing. Prof Bakshi who now teaches at MDI Gurgaon, also taught at IMI, Fore School, and ICFAI Business School in mid-90s to survive as an investor without working as a salaried employee for anybody. He would teach for three hours in Chattarpur branch of ICFAI and then go to Kirti Nagar branch and deliver the same lecture another 3 hours. Talking for six hours and driving 120 kms in June in Delhi in a non-AC car.

 

Along the way, Prof Bakshi figured out that if you do good things, you get them back with interest. And if you do bad things, you get them back with interest too. And that explains why he teaches security analysis. He not only teaches his students value investing, but has also influenced them to lead a better life. The unending zeal for learning makes him a 'learning machine'.
 
Prof Bakshi gave a scintillating talk based on his personal experience of investing over 22 years during which he learned what not to do as a result of painful direct experiences as well as vicarious experiences. Through video clips, images, charts and innumerable stories, and loads of humour, his key message was that we should always try to avoid risk-seeking behaviour.

Prof Bakshi explained with examples on how the investor should ideally respond to new information about a company in which he had already invested. He also spoke about psychological dangers of ownership that one must be aware of, rules which apply to buying a stock, which also apply to holding a stock and how should one approach the sell decision.

His presentation covered insights into human psychology such as overconfidence, anchoring effect, incentives, commitment bias, overconfidence, social proof (others are doing it and getting away with it), deprival super reaction. ('I don't want to miss this chance') combined with the rules of probability.

According to Prof Bakshi we can avoid unnecessary risks by not taking leverage, seeking protection from nature and being wary of false pitches and promotions. He also explained how leverage causes both financial and psychological stress. 

The session ended with Prof Bakshi answering questions from diverse areas of investing such as diversification vs concentration, number of stocks in portfolio, investment mistakes, and prospects of the different sectors.


 
In case, you missed the lecture from Prof Bakshi, you can access the video in few days. Here is the link to access all videos from the Investor Club...
 

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COMMENTS

Karthikeyan Veerapandian

3 months ago

By when I can access to this vdeo? Eagerly checking every one hour for last three days.

Kamleshkumar Natverlal shah

3 months ago

Proactive initiative by moneylife foundation in educating n protecting investors interest in stock.

Mahesh hamne

3 months ago

It was wonderful. only improving point , FAQ session would have been proactively set to extract the maximum out of prof.

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