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“Mafia” Manipulating Bourse

Jun 4, 2011 3:23:46 PM - thesundayleader.lk

W.K.H. Wegapitiya

Some stock market investors make money by trading in shares without creating value to that organization, a company director told this newspaper.
W.K.H. Wegapitiya, chairman LAUGFS Holdings plc, an LPG gas distributor, said that there are some “shell” companies (ie dormant companies) whose shares are taken-up by those investors for no rhyme nor reason and “dumped” at a profit, without creating value to those companies.
He classified such investors as high networth individuals (HNWIs) who are involved in this scam, ie people who have in their holding millions of rupees worth of shares.
Wegapitiya said that there is a ring of around 10-15 such HNWIs who are involved in such trades.
On the other hand, one sees the shares of companies which make good profits and which create value to its stakeholders fall, he said.
Wegapitiya said that the modus operandi of this ring is such that when a person wants to up the value of the stock he holds, say by 20%, they get into the game by buying that stock, thereby creating demand for it, which pushes its price up and then dump it for a profit.
Asked what the regulator is doing about this scam, Wegapitiya in reply said that he doesn’t know.
When this reporter asked a Securities and Exchange Commission (SEC) source who didn’t want to be named about Wegapitiya’s allegation, he said that the SEC acts on evidence and not on speculation.
The source said that one of the steps taken by the SEC to prevent market manipulation is by imposing price bands. He further said that an improved surveillance system is on board to capture market manipulators.
And a near foolproof system has also been implemented to prevent such manipulators, who may be the favourites of the powers that be, from getting away.
“We do not want to scare the market with too much of rules and regulations,” the source further said. However investigations are being conducted against certain manipulators, the source said. The SEC has the will to prosecute such offenders without fear or favour, which, previously, it might not have had, he said. (See also related article on this page).