Bear cartel role under Sebi scanner

Cos Allege Role Of Bears In Dramatic Fall Of
Stocks Even When Fundamentals Are Strong
Nishanth Vasudevan & Ashish Rukhaiyar
MUMBAI
Jan 23, 2009

THE Securities and Exchange Board of India (Sebi) is learnt to be examining the alleged role of a group of bear operators in the sharp fall of a few shares in recent weeks. A number of market sources say that the aggrieved companies have approached the market regulator to discuss the role of the ‘bear cartel’ in the decline of their shares. A top Sebi official told ET that the regulator is looking into the matter, without divulging further details.

According to market participants familiar with the matter, the bear cartel, led by two traders, has upped its ante in recent times, targeting shares that are relatively vulnerable to swift declines. Of these, one is a veteran market player who has returned to the stock market after being away for some time, and who, in the past, had battled some of the most famous bull operators on Dalal Street. The other is said to be a high-stake player, whose aggressive bets — mostly on the short side — have driven him to near ruin on a couple of occasions in the past.

It is not clear if the players are operating in tandem or separately. But their targets have been common. They are mostly companies where valuations are perceived to be ‘excessive’ or those firms whose promoters are believed by the market to have pledged shares with financiers.

“The bear cartel has used the most relevant topics such as balance sheet irregularities and triggering of margin calls, which have created huge panic in other stocks, as weapons to trigger panic in the targeted stock,” said a person familiar with the matter.

This group of operators, in recent weeks, has successfully targeted companies such as Educomp Solutions, Rolta India and Ruchi Soya. Another person close to the matter said that two of these three companies have approached Sebi, though this could not be officially ascertained.

In the latest case, shares of Educomp were hammered on Tuesday on market talks that its accounting practices were questionable. The company refuted these allegations and also filed a complaint with the economic offences wing of the Crime Branch, saying that some vested interests were trying to beat down the stock price by spreading false information. An Educomp spokesperson said that company officials would meet Sebi on this matter soon.

In the case of Rolta, shares fell 60% in a single day on speculation that stocks pledged by promoters have been sold by financiers. This has been repeatedly denied by company’s chairman Kamal Singh. Rolta CFO Hiranya Ashar said that his company wrote to Sebi on January 14.

“We have asked the regulator to look into the unusual trading pattern in our stock. We have reasons to believe that a group of people is trying to hammer our stock.” People familiar with the thinking in the bear circle said that the target list does not stop here and may extend to more companies whose accounting standards are suspect.

It is believed that the same group of operators was involved in the sharp slide in ICICI Bank in September because of speculation about bank’s exposure to stressed assets overseas. The private sector bank had approached Sebi to check if there was a ‘concerted attempt’ to drive its share price down.

PRICK & CHOOSE
The cartel has upped its ante in recent times, targeting shares that are relatively vulnerable to swift declines
The cartel targets cos with ‘excessive’ valuations or those firms whose promoters are believed to have pledged shares with financiers
Cos like Educomp, Rolta and Ruchi Soya have been victims