Securities market regulator SEBI (Securities and Exchange Board of India) has diluted its stance of refusing to settle cases involving unfair and fraudulent practices.
In 2012, SEBI, under Chairman UK Sinha, decided that it will not consent to settle certain capital market violations. 10 offence categories, including unfair and fraudulent practices and front-running, were put on a negative list in the consent guidelines. In 2014, the guidelines were formalised into regulation. 2 years later, SEBI, under the same Chairman, has changed its mind.
In the agenda note circulated for its May 19, 2016 board meeting, SEBI says it seeks to clarify the interpretation of the 2014 regulation and wants to allow settlement as a general rule, rejecting only exceptional cases.
‘It is hereby clarified that the purpose of sub-clause (b) of clause (2) of Regulation 5 is not to prohibit the settlements in respect of all kinds of fraudulent and unfair trade practices, the general rule shall be settlement of such defaults, with appropriate terms and rejection in exceptional cases.'May 19 SEBI Board Agenda Document
After that board meeting, SEBI announced a change in the interpretation of the settlement regulations but did not reveal details. The board meeting agenda document, released recently, make it clear that SEBI has now opened the door to settling almost all cases involving fraudulent and unfair practices and front-running.
According to the document - the market regulator will assess the role played by the applicant in committing the fraud and also the subsequent actiontaken by the applicant in co-operating with the investigation agencies before deciding upon proceeding with the settlement. It further says that SEBI will look at the evidence against the applicant and not merely the charges or show cause framed against the applicant by any investigating authority as the deciding factor.
The board meeting agenda document says that settlements in these offence categories will be the norm, except in the case of ‘serious' violations and any other violations that cause market-wide impact or loss to the retail and small shareholders.
There too SEBI has placed a caveat - if a settlement applicant falls in the ‘exceptional' category but agrees to make good the losses to the satisfaction of SEBI, then it will allow the applicant to settle subject to the undertaking that the settlement will be ‘for the limited purpose of settling administrative and civil proceedings which the Board alone is competent to initiate under the securities laws, and for no other purpose, he shall be deemed to have admitted his guilt before the Board'.
It is not clear if this change in interpretation of the regulation will apply with retrospective effect. But this change of heart is justified by SEBI as a means to reduce litigation and use regulatory resources more efficiently.
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