Sebi to speed up dispute settlement

Negotiated resolution on the cards.

Securities and Exchange Board of India Chairman M Damodaran is taking a leaf out of New York Attorney-General Eliot Spitzer's books.

According to Sebi sources, the regulator is considering a negotiated settlement of disputes with market players in step with the US system adopted by Spitzer with a great deal of success.

The move, if effected, will substantially reduce the burden on the judicial system, while opening a window of opportunity for expediting court cases. The proposal is likely to be taken up at Sebi's forthcoming board meeting. If the proposal gets the board's approval, an amendment to this effect will be made to the Sebi Act.

A negotiation settlement system will be similar to plea bargaining, though not exactly the same. In a plea bargaining system, the accused accepts a lower offence and strikes a compromise with the regulator.

A negotiated settlement will be different in that it does not require accused entities to admit or deny charges but enables them to negotiate with the regulator directly for a reasonable penalty or punishment.

Spitzer has earned credibility by going after large American corporates and striking settlements running into billions of dollars. In 2002, when he started out, he struck settlements of $1.4-billion with 10 securities firms accused of distributing faulty stock research to investors. Some other high-profile settlements included a $600-million deal with Alliance Capital Mutual Fund.

It may also be recalled that Justice Kumar Rajaratnam, presiding officer, Securities Appellate Tribunal (SAT), had suggested that Sebi might consider resolving the issue through negotiations with UBS, when the latter had gone on appeal against a Sebi order banning the firm from issuing overseas derivative instruments.

However, the case took an unexpected turn with the Sebi counsel dismissing the suggestion and the presiding officer recusing himself from the case. Curiously, UBS won the case subsequently.

Sources said the negotiated settlement system would be different from the compounding system which the Reserve Bank of India and the Company Law Board followed.

Under the compounding system, the accused admits mistakes or violations and pays a penalty which is usually lower than what it would have been if the matter went through the normal judicial course. In negotiated settlements, the accused need not plead guilty.

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The negotiated settlement system will be different from the compounding system under which the accused admits the mistake and pays a penalty. In a negotiated settlement, the accused need not plead guilty

It is also different from plea bargaining where the accused accepts a lower offence and strikes a compromise with Sebi