Clamour for credit and indirect pressure exerted to stop investigations have been the main demands of the so called ‘stock market mafia’ existent on the Colombo Bourse, says Tilak Karunaratne, who tendered his resignation as the Chairman of the Securities and Exchange Commission (SEC) on Friday. Reluctantly stepping down barely nine months after taking over the position, the former Chairman said that he had tried to fast track investigations into market malpractices under his tenure so as to bring sanity to what he described as ‘a wild market where some people were shooting from the hip’.
In what could be his first interview with The Nation Gain following his resignation, Karunaratne explains the sequence of events that led him to call it a day and his expressions showed that his main disappointment was that he could not effectively take some of those real perpetrators of the Colombo’s Stock Market to task.
Q: What made you accept the position in the first place?
Well, I’ve known the President for a long long time. We’ve been in the same party for a long time together. We’ve been buddies and in a way that we’ve worked together to strengthen the party when it was in the doldrums and to bring it back to power. But unfortunately, I had to leave when Anura Bandaranaike joined the UNP in 1994. I’m a very close friend of Anura and at that time I thought I shouldn’t let my friend down and crossed over whereas, the President decided to stay on. When you look back, I would say he took the right decision. Anyway, since I rejoined the party, the President had been offering me many posts. Before Admiral Wasantha Karannagoda went to Japan as an Ambassador, he offered me that post. However, I very politely turned down (the offer) saying that I want to be in Sri Lanka and I’ve other involvements. Anyway, I’m no diplomat. You can see from the way I behave. I’m not inclined to satisfy all the parties which is part of the game in diplomacy.
Then after some time, before Harry Jayawardena was appointed Chairman of Ceylon Petroleum Corporation (CPC), he offered me that post. Again, I said very politely I don’t want, because petroleum has been a den of thieves and rogues. And I did not want to go and make my henchmen. Then, there was a vacancy in the High Commissioners Post in London and the President offered me that. Again I rejected that offer. So I’ve been constantly saying no to all the offers that came my way.
However, last year, when the President came as the Chief Guest to the 125th Year Anniversary celebrations of Ananda College on my invitation (as I’m the President of the Old Boys Association), he said “Tilak, don’t say no this time. I think this is an ideal opportunity for you. You have been an investor for a long time in the stock market and you know the workings of the stock market, therefore accept the position as SEC Chairman.”
Since, I’ve been saying no to him all this time I was at the time reluctant to say no to him, so I said, give me 48 hours to decide. So I thought about it and consulted my wife and children about it who were not in favour of it at all. But, still I thought about it and I said I will accept it and work purely in an honorary capacity. No job, no car, no chauffeur, no petrol, no mobile phone, nothing….and I also said that I want my independence and I said I would like to do as per the objectives of the SEC Commission’s Act and want to achieve those objectives impartially without fear or favour. So the President said “no issues Tilak, at all. I know the way you conduct yourselves and just sign it”. So on December 7, last year, I assumed duties.
Q: When do you think you faced your first obstacle after you took over?
At the first commission meeting itself, I knew what was happening. There were some investigations which had been put into cold storage. So when Director, Investigations came and reported that he had not been doing very much during the last six months or so, I asked him why? And he said I was made to understand that I should not proceed with these investigations! So I asked the Commission Members whether there was a Commission decision like that. They said no, but said an unofficial indication was given that we must go slow on those. Then I said No and this can’t happen like that because as a regulator, it’s our job to bring to book the wrongdoers in the capital market and therefore we have to restructure.
All the Commission Members, to their credit, agreed to this and we opened all these files. And that got ‘lot of people’ worried. If they are innocent, they do not have to worry, you know? So from that day in January, they have been working to somehow discourage me with the investigations through various close friends of mine whom they had contacts with. I don’t want to pick names but some of them who came to me were very powerful people who said, “Tilak, you know, go slow on these, he is a pal of mine. They’ve invested a lot, so you know, take it easy kind of thing”. So I said, I’ve come here to do a job and I cannot go easy or slow on anything. I am fast tracking in fact! That made them very annoyed. And from that time, they’ve spared no pains to push me out. I never gave it or entertained their pleas since investigations were necessary.
Q: Was all the management staff of SEC cooperative to the stance you took?
By and large they were cooperative. But, I might say that our Director Investigations was not very cooperative. That’s another story which I don’t want to elaborate on. Overall, he was very slow on the draw. So therefore I appointed a ‘surveillance committee’. The idea behind this was rather than one man handling it, I picked two other directors and we formed a committee so that this committee could go into the inquiries.
Q: Can you update on the inquiries the Committee has heard so far?
Now actually, most of the inquiries are at their final stages and there are 17 ongoing inquiries including the NSB – TSB deal.
Q: Despite the statistics that show that broker firms still have a large pool of unutilized credit, it is learnt that some broker houses have been demanding further credit expansion. Can you elaborate why?
Yes. It is only a very few brokers and not all, who have been working hand in glove with this ‘mafia people’ who have been agitating for credit. Actually there is almost Rs. 7 billion of unutilized funds in the system that is still available. But, some of these brokers have fully used and even exceeded their limits. So they have been clamouring for more credit.
Q: What happened at the recent meetings you had with the President and Dr. P B Jayasundera?
Yes. the President called up the brokers, these ‘so called’ investors, Chairman and Commission Members of SEC, Chairman and Directors of CSE for a meeting. We didn’t know what it was about but we were asked to come. However, when we went there we found that the ‘other side’ was asked to come with a powerpoint presentation. It was made by Dilith Jayaweera. But we were never told about this presentation beforehand and we thought it would just be a discussion involved.
One more thing, I don’t think the President was aware of this at all and I don’t blame him at all. But, even the seating arrangements, the brokers were called in first and they occupied the main head table. Except for me and the CSE Chairman, Krishan Balendra, whom I quickly got to sit next to me, except the two of us and the stockbrokers, none of other stakeholders were seated on the main table. My commissioners and the CSE directors were all over the floor. So you see, that is not the way to treat respectable people. I don’t know who made these seating arrangements but it clearly showed that it is going to be one-sided.
Then the President invited Dilith to make the presentation and the presentation itself was a full blown attack on us. Very unreasonable and unjustifiable attack on the SEC with full of hatred and venom. I replied to as much as I can, because I was the last man to speak after listening to all of this patiently where some investors and brokers also spoke. But, because their’s was a powerpoint presentation and mine was a verbal presentation, I could not meet everything. The playing field was not level.
After that meeting, Dr. Jayasundera had another meeting as a follow up to the previous meeting. In that meeting, both Mr. Krishan Balendra and I didn’t speak and the brokers spoke. That meeting was more or less on the budget proposals, the pre-budget meeting.
Q: How was your meeting with COPE?
We got huge endorsement from the COPE. Normally they do not give any government institution such endorsement. The Chairman of COPE, DEW Gunasekera, at the time came to me congratulating saying that we have done an excellent job. He wanted me to continue and assured their fullest support. I told them what I wanted was more teeth. The present SEC Act, which is way too old, compared to the regulatory Acts in the Asian region, has to be amended as a priority to give more independence to the regulatory body.
Q: Some allege that during your tenure, you had concentrated too much on the regulatory aspect and not the development aspects which led to the pressure being exerted. How would you respond to this criticism?
That is not true at all. Despite my short stint of eight months, some of the things that we have done to develop the market, what is in the pipeline and what needs to be done for the future were far more greater than what has been done during the same span of time previously. We have done a lot to develop the market. On the other hand, the regulatory aspect is also important. Going into the wrong deals and inquiring and restraining them are also important. Then only foreign investors will come.
Q: Was the SEC contemplating on taking legal action against the offenders?
Yes, we could have filed action against them if we found that they were guilty. Another impediment we have is that according to our jurisdiction, such malpractices can only be heard in criminal courts and not civil courts. As you know it is hard to prove a case under criminal action compared to the civil cases. In the other countries, we have both.
Q: Some say that you were over regulating the market which created a sense of fear psychosis?
It’s a myth created by this stock market mafia. I totally reject that. We have not come with anything. From the time I took over, we have been relaxing rules. Regarding the credit rule, earlier it was T+5 then we went up to T+30 and recently we even relaxed it upto T+120.
Q: Some say that you were not diplomatic and secretive about the investigations?
That’s completely false. We have been secretive. Even when COPE asked me to come up with the names, we have not revealed anybody and we have been secretive.
Q: Any final thoughts?
I would like to thank all the members of my staff including my commission members for all the support they gave me to achieve the objectives of my organization. I am also thankful and grateful to the Chairman and Directors, the Chief Executive and members of the staff of the Colombo Stock Exchange who helped me to carry out my duties during my tenure. Except for one or two all the others have been 100% behind me and very enthusiastic and very keen to work for the betterment of the organization. It was a great time we had together and I was very happy to have been there.