The Cabinet approving an ordinance to give more powers to Sebi to deal with companies like Saradha that ran a collective investment scheme (CIS) should give a fillip to the regulator?s ability to check such frauds in the future. While Sebi had been aware of Saradha?s activities way back in 2010 and had classified this as a CIS which came under Sebi?s purview, the group kept insisting it was doing nothing of the sort?that what looked like a CIS was in reality just deposits for flats/plots of land made to Saradha?s realty division. Since the law as it stands does not allow Sebi to issue cease-and-desist orders, Saradha was able to carry on its activities for another 3 years. To that extent, the Cabinet decision to issue an ordinance instead of waiting for Parliament to pass the law was a good idea, given the frequency of disruptions to Parliament in recent months.
The real question now is whether Sebi will be able to do much with its new powers which include the power to search and seize assets of defaulting firms and even access call data records in the case of insider trading activities. For one, it is obvious Sebi?s staffing pattern needs to be dramatically improved. As compared to the SEC?s 4,000 employees, Sebi has a mere 600 and several thousand more firms to keep track of. More important, with data not even digitised, it is easy for firms to run circles around Sebi. Saradha did it by offering Sebi 63 boxes of useless documents over various months and Sahara bettered this by offering truckloads of information. Which is why, while it took the SEC just 16 months to secure a conviction against Raj Rajaratnam, it took Sebi more than 3 years to just act against Saradha. So now that Sebi has been empowered to act, it needs to be staffed with people with the appropriate level of expertise in different aspects of the law and accounting. It is this that needs to be done to rid India of financial sector scams and not, as the FSLRC report recommended, merging all non-RBI regulators into one.
