Sebi: Sebi likely to start prosecuting soon for serious offences

Mumbai: Securities crimes could soon lead to tougher penalties. The government, in consultation with the Securities and Exchange Board of India (Sebi), wants to tighten rules that could lead to criminal prosecutions for market offenders, people familiar with the matter said. This will require changes to the Sebi law, they said.

Sebi currently has powers equivalent to those of a civil court and issues penal orders against companies that commit market violations. However, if it wants to initiate criminal prosecution against such market participants, it must go through the ordinary courts. In recent years, Sebi hasn’t used his law enforcement powers all that much.

But in the new Sebi law that is in the works, the government plans to make the regulator mandatory to prosecute certain types of crime.

The idea is to create a greater deterrent to fraud by market participants. This change is in line with the Companies Act, which does not allow penalties to resolve certain types of infractions.

Sebi and the Treasury did not respond to inquiries.

“In all developed countries, security market fraud such as insider trading leads to criminal prosecution. Although Sebi has similar powers, these have been used very rarely by the regulator,” said one person with direct knowledge of the matter. “When the proposed changes are completed, Sebi will be tasked with pursuing the serious market offenders.”


“Special courts required”

According to Sebi’s FY21 annual report, the market regulator initiated proceedings in 1,763 cases, three of which led to criminal prosecutions. In fiscal 2020, Sebi took action on 2,070 cases, only 10 of which resulted in prosecutions, data showed.

Delays in proceedings and the higher threshold of proof before ordinary courts are two main reasons why Sebi has chosen to rarely exercise prosecution powers, market participants said. “Normal court cases take years to complete, and Sebi must prove to the court beyond a reasonable doubt that the defendant violated criminal law,” said one of the above. “But such adjustments should also go hand in hand with the creation of more special courts for Sebi, as judges deciding such cases would need some technical knowledge of the securities market.”

However, depending on the whereabouts of the accused, the market regulator can initiate proceedings against market offenders in any criminal court in the country. But the Mumbai Circuit Court has a special Sebi Bank that hears cases related to the security market. As the number of law enforcement cases increases, more such special banks will need to be set up, experts say.

However, not all crimes are prosecuted. For example, there must be no criminal aspect if a company or broker does not manage disclosure with the required minimum margins. These offenses will continue to be judged by Sebi and punished with penalties. On the other hand, crimes such as insider trading or mismanagement of investor funds may have the criminal intent to defraud investors. In such cases, law enforcement powers can be exercised. Sebi: Sebi likely to start prosecuting soon for serious offences

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