Pyramid of fraud

The Pyramid Saimira fraud doesn’t even have the attribute of being a complicated piece of skullduggery. A large number of people, a business journalist among them, got the stock price moving in a direction they wanted by using a forged letter. However, it is the very basic nature of this piece of crooked business that makes the implications deeply worrying. Full marks to Sebi, of course, for quickly investigating the fraud and strongly punishing those involved. This is not the first time, in India or elsewhere, that a journalist has been caught reinterpreting his reporting duties in a fashion that allows a steep rise in returns on a dodgy investment. Journalists covering high-stakes finance/corporate news need a particularly persuasive set of disincentives against moral malleability. That there are not too many of this kind of journalists is no comfort when put beside the evidence against the few who violate absolutely basic journalistic principles.

Sebi’s investigation also shows the extent to which apparently okay corporate entities—Pyramid Saimira looked like a straitlaced entertainment company—can manipulate the market. Shades of Satyam? Maybe even worse. The Saimira case involved 200-plus people in different institutions. That such a large number of market players, across different functions, helped perpetrate a fraud for a company with a turnover of less than Rs 800 crore is indication of the challenge that faces Sebi. The small fish is often harder to catch than the big fish and the damage can be equally big in both cases. The promoters’ role is another issue here. In the Saimira case, one of the promoters was using a mobile phone registered in someone else’s name, that someone acting as the proxy for manipulating market volumes. This is crookedness of the grubbiest kind and it is impossible not to wonder how many promoters entertain clever ideas like this to manipulate their stock price. Sebi has turned India’s stock market into a mature institution, a far cry from the days a bunch of brokers thought the market was their private fiefdom. Both the current Sebi chief and his predecessor have made large contributions towards that outcome. We haven’t had a monster market fraud since the Ketan Parikh case. But, remember, SEC in the US looked as surprised as everyone else when the Madoff scam broke. Sebi already inspires considerable fear. The fear factor has to be ramped up considerably.

via FE Editorial