By Frederica Jansz
Tilak Karunaratne, the former Chairman for the Securities and Exchange Commission says that President Mahinda Rajapaksa as the Minister of Finance brought pressure on him to resign from his post as chairman SEC.
Excerpts of the interview:
FJ: Your predecessor Indrani Sugathadasa was forced out despite being a senior highly regarded public servant and wife of President’s Secretary Lalith Weeratunga. In those circumstances why did you accept the appointment as Chairman of the SEC?
TK: Good question. There were two things. I knew what was happening. I had also been a long term investor in the bourse. And I have also been a keen student of what was happening in the SEC. Indrani, in my view, was at a disadvantage because her husband is Secretary to the President so whatever moves she would probably have also made would embarrass her husband. Therefore she obviously would not want to do certain things which would embarrass Lalith. So she was at a disadvantage. I did not have those disadvantages.
I also got clearances from the president that I would have a free hand. Prior to this he offered me three other posts. One was as Ambassador in Japan which I politely turned down saying I am not a diplomat. I call a spade a spade and I am not suited to be a diplomat. He then asked me to take over as Chairman of the Petroleum Corporation. I said that is a den of rogues and thieves and I don’t want to get involved in that. Again thereafter Lalith called and told me, “HE thinks you’re the best man to go as ambassador to London.” But I told Lalith I have previously also turned down his offer as a diplomat so I don’t want to go anywhere. So I had been turning down all these offers the president had been making to me. Then when he came to Ananda College on my invitation to celebrate its 125th anniversary of the College, that was in November last year, he said “Tilak you have been saying no to everything but now there is a job that is suited for you. I know that you have been an investor in the stock market and you know what is happening there. Don’t say no this time, accept it.” I wanted 48 hours to think about it I consulted my wife and my family and friends. They all advised me against it saying this is a real hot seat. You should just relax and go play your bridge and go to the jungles and spend quality time with your grandchildren. But I said no, I must take up something this is a challenge… and then I said yes to the President.
FJ: You are a well informed man. Did you really believe that you could take on the so called ‘Share Market Mafia’ who are backed by people at the highest levels of this government?
TK: I have a lot of confidence in me. And I thought the President would support me. And that between the two of us we would be able to clean up the bourse and get rid of this mafia. That is what I thought.
FJ: If that is the case why then did you resign. Shouldn’t you have gone ahead with what you were doing despite the pressure for you to resign?
TK: But when the pressure comes from the very person who appoints you. then what alternative do you have?
FJ: It is still not clear who asked you or pressurized you to resign?
TK: Obviously the appointing authority is the Minister of Finance. According to the SEC Act the Chairman and the Commissioners and the Director General are appointed by the Minister of Finance. So the Minister of Finance is the appointing authority. So when the pressure comes from the same quarters, how do I resist it?
FJ: So the President pressured you to resign?
TK: I am saying that the Minister of Finance was the person.
FJ: The President is the Minister of Finance.
FJ: So he asked you to take this post and then he pressurized you to resign?
TK: Not directly, where he picked up the phone and said Tilak you have to go. But I got the message through those quarters who are very close to him as well as guys whom I also know quite well.
FJ: If what you have called the ‘Mafia’ accuse you of creating a fear psychosis and over regulating the market?
TK: I can only quote Koshi Mathai on that. He has said this is laughable to say the Colombo Bourse is over regulated. This is one of the least regulated stock markets in the world. I have studied the various jurisdictions specially the markets in the region. We are nowhere near. We are in the 1980s. We were formed in 1986. We are still in the 1990s whereas in actual fact we are in 2012. So compared to the other capital markets we are the least regulated. So this is a joke.
In response to your question on my having created a fear psychosis that is a creation of this Mafia! What is the fear psychosis we have created? In the course of usual investigations we have sent out letters. Not only to the people who are being investigated but to those who we have some information and are connected to these people. For example if inquiring into the activities of a broker, sometimes we may send letters to his client and ask him for an explanation. The worst case scenario would be calling them to record a statement. These letters have been going out since 2004. The letter is standard. They are sent under the various sections of the Act quoting from chapter and verse… and any failure to respond will be dealt with under this section. Similarly, Income Tax and various government entities do it. Under the various sections penalties apply. So there is nothing wrong with that. The only thing is the number of letters that have been going out is higher. Because these were virtually in cold storage. Initially the commissioners asked the director investigations for a progress report which had not been submitted for the last six months. When I asked why and the other commissioners asked if it was a commission decision he said no, but that he had got orders from another quarter to cease the investigations.
FJ: Who is the Director Investigations? And who gave him such an order?
TK: The Director Investigations is Dhammika Perera. He said he was asked to cease or put a stop to investigations. The order had come from the previous DG Malik Cader.
FJ: Malik Cader asked him to stop the investigations?
TK: That he was asked to cease or put a stop to the investigations. So then the commission – not me – the commission decided, no it should not be so that we must recommence investigations. So when we started investigations we sent out letters so naturally the number of letters we sent out was much higher than before.
FJ: Who exactly is this Mafia? Can you name them?
TK: I don’t want to name them because we don’t have sufficient evidence to take them to courts or to bring a case against them at the moment. Even when the COPE asked me who the mafia was I said I am sorry I cannot name them but I think people who generally deal with the Bourse with the Stock Exchange know very well who they are. There is a very select group of so called high net worth investors. They call themselves that – I don’t call them high net worth investors. They are ruthless – Now when there are 28 brokers – the investors…. these guys who are manipulating it would be certainly less than 10, out of 221,000 accounts in the market. So it is a very minute group. But they are so very powerful.
FJ: Who could have influenced the President to get rid of you? After all he offered you the job. He wanted you there. So who could have pressured him?
TK: Certainly this group. It is very unfortunate the President did not call us and ask for our side of the story.
Even that famous meeting he had with selected investors and the brokers and Chairman and Commissioners of SEC and Chairman and Directors of the Colombo Stock Exchange. The way it was arranged… first the brokers were called in and they occupied the centre table… on one side of the President was Gitanjana Gunawardena, Deputy Minister of Finance and Planning, then Sajin Vaas Gunewardena and myself … I had to call Krishan Balendra Chairman CSE (he was looking for a seat) and got him seated next to me – my commissioners and his directors were looking for seats.
They were all over the place. The brokers were occupying the main table! And then the President asked Dilith (Jayaweera) to make a presentation. So it was very unfair because only one side of the story was given.
FJ: What is your advice to the hundreds of small retail investors who invest in the market?
TK: The first thing is the selection of a broker. Anyway you have to go through a broker despite now being able to do internet trading we are still not very well informed. We don’t know what is happening in the stock market.
It is not like betting on a horse. You have to study it. So first thing is to select a good broker. And then study published regular research on previous stocks and not take the broker’s advice as the gospel truth.
Do your own research. But a small time investor does not have the capability to do that. The other thing is he should not put all his eggs in one basket. Like in the Golden Key case – like those with only one million rupees. Recently, I had a couple who came to me – they had an infant child too – they came to me and said Sir, I have only one million rupees – money he had got as dowry.
So he discussed with the wife and invested in the Stock Market. And it went up to three million with the pumping up. Then he wanted to exit. But his broker had said no. Don’t exit it is going up further hang on. So he waited. Now it has gone down to 3 ½ lakhs. This man complained to me and I am finding the Broker at fault but I cannot act against him. He asked me to help. We looked at all the possibilities but there was nothing very much we could do.
There are so many complaints like this against brokers. There are files and files full of complaints. So my advice is don’t put all your eggs in one basket. Use 25% of your investment in the Stock Market – Also, go through a unit trust rather than a stock broker – a unit trust would give you a fixed return though it may not be the best return you can get but at least your investment will be safe – your investment can get wiped out here. So the choice is entirely upto the ignorant retail investor but he must act prudently.
FJ: The criticism from the other quarters is that both you and Indrani Sugathdasa were unsuited for this position.
TK: I don’t know why they are saying so. If you look at the London Stock Exchange is presently headed by a Chemical Engineer. Who retired as director of British Petroleum. He is not the regulator he is the promoter.
As regulator you must have a knowledge of the market which I have and I have been an investor myself for a long time as well as I have been a student of what was happening there.
So I completely reject that accusation. I am not qualified to speak about Indrani Sugathdasa – but even in her case she is a very experienced administrator and the learning curve was quite steep for her. But within three months or so she learnt a fair amount. I think what they mean by not suitable was that we both stood up to them and they were not able to control us and dominate us.
That is the suitability they are talking about. They want a very weak regulator and a very weak Chairman whom they can control