CBI 'handicapped' by limited scope of stock scam probe

By Vinay Kumar

NEW DELHI, APRIL 14. The Central Bureau of Investigation has sought to dispel the impression that it is probing the Ketan Parekh induced stock market scam in its entirety.

Highly-placed sources in the CBI said the agency was only investigating how pay-orders of the Madhavpura Mercantile Cooperative Bank deposited at the Bank of India's Mumbai Stock Exchange branch had bombed. A host of companies, floated by Mr. Ketan Parekh were at default on the BoI and the amount ran up to Rs. 137 crores.

Yet the impression continues that the agency is probing all aspects of the scam. The CBI has been getting calls and frantic inquiries from investors, mainly from Mumbai and other metros, who feel the agency is also investing the stock market crash, working of the SEBI and the Mumbai Stock Exchange - something the agency will like to lay its hands on, sources say.

Seasoned investigators of economic offences in the CBI wonder if the pay-order scam would not simply add up to yet another case. The recent Income Tax raids on half a dozen leading Mumbai brokers were not ``focussed'' and would fail to serve any purpose, they said.

For the CBI, it turns out to be a case unrelated to crucial aspects of the stock crash: roller coaster ride of the stock market, allegations of inside trading, rigging of share prices, role of key financial institutions like the SEBI, the Reserve Bank and the Unit Trust of India. It showed how vulnerable the system was and how market regulators had been outsmarted.

Sources said the CBI was feeling ``slightly handicapped'' over the absence of a case against stock exchange operators, brokers, a section of SEBI officials, former chief of the Bombay Stock Exchange and others. They pointed out that the Mumbai police was not fully equipped to handle a case of this magnitude as it would not be able to withstand the pulls and pressures while dealing with high-profile financial players who had made the market a happy hunting ground.

Though the CBI may be making out a case for training its guns on the SEBI, the stock exchange and brokers, the agency's skills after it probed the 1992 Securities scam appear to have been honed over the past few years and its banking fraud cell seems equipped to deal with such cases in their entirety. It remains a moot point if such an investigation would press the panic button in the banking and securities sector.

Sources feel an internal probe by the SEBI will not serve any purpose as there are accusations against the SEBI itself relating to the bear cartel, rigging of share prices and delayed action.

Scams in the financial sector have struck with scary regularity during the past decade. Sample these: stocks and securities scam of 1992 in which nearly Rs. 4,000 crores were siphoned off from banks, plantation companies lured people to invest nearly Rs. 2,000 crores on growing trees, non-banking finance companies (NBFCs), particularly the C. R. Bhansali group which made investors see their deposits worth Rs. 1,000 crores vanish into thin air, and now the stock market crash in which investors have lost their hard-earned savings.

The Government was looking ``closely'' at the UTI, the SEBI and the RBI as well as the role of the top officials in the latest scam involving the banking and stock market systems.

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