Situation very dangerous as fraud cases are rising: SEBI

The rising number of fraud incidents in the stock market at a time when there is greater retail participation has put investors in a “very very dangerous” situation, SEBI whole-time member S K Mohanty has said. Stating at an event here, he said, “So, what kind of situation we are finding ourselves in is very very dangerous. Therefore, this is the right time for sensitisation, awareness, and education.”

Quoting from findings of a survey, he said 65% of the companies have reported fraud this year. He further noted that there are 1.5 crore new retail investors in capital markets.

The survey, conducted by Kroll, had pointed out that 12% of companies, which experienced frauds, attributed it to unauthorised access to sensitive information, according to a report in The Times of India.

“If people who have got access to sensitive data, they will encash it for the advantage of their related parties,” the news report quoted Mohanty as saying.

He added that the regulator is also tightening its practices and cited the example of changes in the related party transactions (RPT).

Fraudulent activities diminish the value of investments as share prices come down, and hence, it is essential to address this problem, Mohanty said.

According to The Times of India report, Mohanty made it clear that it is very important to curb frauds. He is further reported to have said that it is the reputation of the regulator that is at risk and also of the government.

Speaking at the same event earlier, Serious Frauds Investigation Office (SFIO) director Keshav Chandra said corporate frauds are typically decided at the top and there is an entire army of people executing the same while drawing the experience of SFIO in dealing with 99 frauds in the recent past.

He also criticised independent directors, stating that they do not take a critical view of things.
According to an RBI report, it takes an average of 57 months to report fraud in a loan account of over Rs 100 crore, Chandra said.