- Rs. 3.3 Mn. Maximum Fine Insufficient Deterrent Against SEC Violations
Ninety five per cent of insider trading cases in Sri Lanka could be prosecuted to a successful finish if the Securities & Exchange Commission (SEC) Act is amended to allow for phone (wire) tapping, an SEC source speaking on the grounds of anonymity told The Sunday Leader.
He highlighted the success that US prosecutors had in sending stock market investor, Sri Lanka born Raj Rajaratnam to jail for insider trading because of the flexibility of US law that allowed for phone tapping of suspects involved in insider trading.
The source said that another drawback in the existing law is that an offender in securities trading could always compound a case against him where the maximum fine that could be imposed on him would not be more than a mere Rs. 3.3 million.
That way he escapes facing the full wrath of the law by asking that his case be compounded, the source said.
There have been a number of instances because of this recourse that an accused who has been charged with violating SEC rules have pleaded that his case be compounded and has got away after paying the maximum compounding charge of Rs. 3.3 million, he said.
However there have been instances where the SEC has settled for lesser amounts depending on the seriousness of such violations, he added.
But sometimes the offence, say in the case of insider trading, would reveal that the offender would have had made as much as Rs. 400 million, ie more than 100 times the value of the maximum fine imposed, because of such cheating, the source said.
In that backdrop a fine of Rs, 3.3 million is nothing, he said.
The guilty party pays the fine and afterwards continue the same way, the source said.
However in overseas markets, offenders have to pay fines amounting to three to four times the amount that they have illegally creamed-off by crimes committed by acts such as insider trading and not a fractional percentage of the monies robbed as is the situation here, the source said.
But improvements to the law are a process of evolution, he said, adding that the proposed amendments to the SEC Act will include a clause to bring in civil action against offenders.
The source said that at present the Act only provides for provision to take criminal action against offenders. But room to also institute civil action against offenders will address a lacuna in the current Act, which, as the law currently stands, allows minor offenders to go scot free, the source said.
But once those amendments come in to being, they too could be prosecuted and an avenue for SEC to earn more revenue in the form of fines imposed against such offenders may also then be opened, he said.
Some of the other proposed amendments to the SEC Act include permitting derivatives trading and regulating investment banks.
Those amendments are expected to be on board in another year’s time.