The ‘Stock Market Mafia’ Is Back
By Dinouk Colombage
Investor confidence in the market, already at a low ebb, is expected to nose dive following the forced resignation of the chairman of the Securities and Exchange Commission (SEC), Tilak Karunaratne, as small investors fear another round of market manipulation by an influential group of high value investors dubbed the ‘Stock Market Mafia’.
Karunaratne, a highly respected businessman and one time politician is the second head of the SEC to be forced to resign within nine months.
His crime is that he was taking steps to clean up the share market of manipulators and speeding up investigations into various market manipulations by members of the ‘Mafia’.
Another member of the commission, Sanjay Kulatunga who backed Karunaratne’s efforts to clean up the market also resigned on Friday.
Indrani Sugathadasa, a highly respected public servant with an unblemished record of integrity was forced to reign as head of the SEC on December 01, 2011. The power of the ‘Mafia’ is evident from the fact that she is the wife of Presidential Secretary, Lalith Weeratunga.
Karunaratne is also a long time personal friend of President Rajapaksa and was persuaded by the President himself to take up the post.
Thousands of small investors were stuck with worthless shares when the ‘Mafia’ artificially inflated share prices of ‘junk’ shares and then sold out in most cases to government institutions making huge profits in a scam called ‘Pump and Dump.’
Nahil Jayawardena, an investor in the stock market, said that he was considering pulling out of the market with the resignation of Karunaratne.
“His resignation is a signal that the stock market is being controlled by a few individuals. Karunaratne launched investigations into questionable deals and came under pressure for doing so. What protection is there for those who are not big players in the market,” he said.
Jayawardena’s fears appear widespread with numerous other investors expressing similar doubts. Suhith Jayamanne said that he had already sold some of his stocks in the market. “It may be considered panic selling but the market has been down for several months and this will not improve investor confidence.”
He said that his decision to sell was not based purely on Karunaratne’s resignation. “The market has been down for several months. The government tells investors to remain calm and that foreign investment is arriving. We have not seen any of that, and with the SEC head’s resignation it is unlikely that such investment will arrive. This is the second consecutive SEC chairman to resign over pressure from unnamed parties, who is really controlling the market,” he observed.
Aritha Wickramanayake, the first Director General of the SEC, said that he was appalled by the resignation of Karunaratne. “This is just another sign of the market being controlled by a few individuals.
In my opinion the chairman had been doing a good job. Like anyone else he did make mistakes, but he showed that he was willing to make the tough decisions which would benefit the market.” Wickramanayake questioned who would now take over the post. “Two SEC Chairmen have resigned in the space of eight months. You must wonder what decent person will be willing to take up the post. In my opinion the only type of person who can survive in the job will be someone who will turn a blind eye to the illegal activities of certain investors,” he said.
The former Director general added that this resignation will only serve to damage investor confidence in the market.
“For the stock market to recover after the last crash it would take a number of months. Instead some investors believed it could be done overnight. These are the same people who helped pump up the market with false prices, and who have got rid of Karunaratne because he was looking to expose them,” he said.
Wickramanayake was sceptical about the future of the market, saying that rebuilding its credibility was the only way to go. “When a SEC Chairman is forced to resign because of political pressure, investors will question why. When they see he was looking to increase investigations in the stock market they will then fear for their own financial security. Sri Lanka’s stock market credibility has suffered a serve blow with his resignation,” he said.
However, some stockbrokers have chosen to take a more optimistic approach. A stockbroker employed by Bartleet-Trans Capital, on the condition of anonymity, explained that they were confident the market would not be affected by Karunaratne’s resignation. “The resignation of a single person will not have a great impact on investor confidence. During his tenure the market remained the same, so I do not believe that it will make any grave difference,” the broker said.