The Securities and Exchange Board of India (Sebi) investigations into the scrip movements of Amara Raja Batteries and Cyberspace Infosys bare a clear evidence of nexus between the promoters to create an artificial price in the scrips.
On the other hand, the regulator has blamed brokers for the spike in the price of the Lupin Laboratories share, which too it probed.
According to its second interim report on the stock scam, the regulator says brokers Harinarayan Bajaj and his son Rahul Bajaj "were responsible for the creation of a false market in the Amara Raja Batteries share."
It says the two were highly leveraged and maintained the price of the scrip by absorbing deliveries at higher price.
Sebi adds that the Bajajs did not have the requisite funds to pay for the deliveries and even the margins.
This continued in spite of the falling markets and when the bourses witnessed a further decline, the Bajajs, who were solely responsible for maintaining the price of the scrip could not purchase any further shares due to lack of funds and overleverage.
The Sebi report says various members of both the Bombay Stock Exchange and the National Stock Exchange aided the Bajajs in creating a false market in Amara Raja Batteries shares.
The watchdog also said the duo did not exercise due skill and care in their dealings.
Sebi says on the basis of earlier investigation report, a show-cause notice has already been issued to 27 brokers and enquiry is in progress.
The regulator has, however, absolved overseas corporate bodies of any wrongdoing at the Amara Raja counter.
Instead, it says the allegations of complaints and press clippings that overseas corporate bodies sold heavily which led to the sharp fall in the price of the scrip do not seem true. The same is the case with non-resident Indians, it said.
Sebi also says that Amara Raja Batteries has denied having any dealings with the Bajajs. In the case of Cyberspace Infosys, the market regulator says both Cyberspace and Century Consultants opened shell companies in the name of their employees and these companies traded heavily in the shares of Cyberspace Infosys, while other employees were kept in the dark.
It adds that the intention of the member and its associated entities was to create a false and misleading appearance of activity in the scrip and a faux market momentum.
However, Sebi adds that since private placement of shares and bonds are not under its regulatory purview, the issues will have to be looked into by the Department of Company Affairs and the Reserve Bank of India.
The report says the investigation is continuing, though it has taken the testimony of 32 brokers and the deposition of another 17 are yet to be recorded.
On Lupin Laboratories, the interim report says the price rise and share volumes of the company during the period September 1999 to December 1999 was artificial.
It rose to 80,000 shares per day at the peak compared with 10,000 shares per day normally before that.
The report says that Ketan Parekh entities transacted in the scrip and manipulated the price of the share.
These entities also sold shares in large quantities at the artificial high price making huge profits and "large quantity of shares were also sold by the promoters to various foreign institutional investors".
However the Sebi report does not explore this angle any further.
The report has sought examination of the role of the offending brokers connected largely with Ketan Parekh from prosecution angle.
