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CSE hits all-time high, but Opposition casts doubts

18 Jan 2021

  • Eran warns of pumping and dumping

  • Pubudu and Harsha express similar concerns

  • CSE continues to break records

  [caption id="attachment_114680" align="alignright" width="450"] SJB MP Eran Wickramaratne[/caption] In the midst of a record-breaking performance of the Colombo Stock Exchange (CSE), Samagi Jana Balawegaya (SJB) Parliamentarian Eran Wickramaratne has cast doubts over the CSE’s recent performance, warning local   investors to be careful of possible pumping and dumping in the stock market. The statement comes following a number of key milestones achieved by the CSE in the recent past including the All Share Price Index (ASPI) reaching an all-time high to close at 7,992.66 points yesterday (18), surpassing its previous record of 7,811.80 on 14 February 2011. Wickramaratne, who is also the former State Minister of Finance, during a press conference yesterday (18) noted that we hear a lot of comments on the economy, “lots of nice stories and fairy tales”, but, in fact, people are being fooled by only focusing on the stock market. “When we hear the message of the share market – it was not only the message – we need to look at the messenger as well,” he added.  The statements by the former State Minister also come at a time the CSE was recognised by Bloomberg last week as the second best performing equity market in the world. He added that with the replacement of foreign investors with local investment, there seems to be a pattern similar to what was seen in 2011 and up to 2014, when there was corruption in the stock market.  “People in high offices were involved in the racket, according to the forensic audit report. They had an opportunity to go before auditors and make their case, but they did not make their case due to reasons best known to them,” he stated.  [caption id="attachment_114682" align="alignright" width="364"] SJB MP Dr. Harsha de Silva[/caption] Meanwhile, Frontline Socialist Party (FSP) Education Secretary Pubudu Jagoda, during a press conference last week, cast doubts over possible money laundering that might be taking place at the CSE.  Jagoda stated that the listing of companies in the CSE has soared dramatically in the recent past while the Budget 2021 decided to provide a 50% tax concession for the years 2021/2022 for companies that are listed before 31 December 2021, and maintain a corporate tax rate of 14% for the subsequent three years. “This might be an attempt to bring in all the black money of Sri Lankans into the country and pump it into the CSE in order to whitewash the money. This is possibly an attempt of money laundering,” Jagoda opined.  SJB Parliamentarian Dr. Harsha de Silva too made similar statements last week and warned of another pumping-and-dumping at the CSE.  “What is this old game? Shares of the companies that do not have a real value are being promoted by local investors while foreign investors are selling their stocks. Young investors with lack of experience and knowledge compete with each other to buy these promoted stocks. Then the CSE performance sky-rockets but as the time goes, prices of artificially pumped stocks will go down. The people who pumped those stocks might withdraw their profit and be long gone by then. Those young and small investors will take the hit,” Dr. de Silva noted.  Meanwhile, issuing a statement on Sunday (17), the Securities and Exchange Commission (SEC) stated that in order to ensure the integrity of the market and to protect the large number of investors in the face of the surge in the daily number of transactions, the regulatory and supervisory framework of the SEC has been strengthened by enhancing the capability and capacity of its Supervision and Surveillance Divisions. Meanwhile, on a further note, drawing a comparison between the possible pumping and dumping that could happen at the CSE currently between the pumping and dumping that took place from 2011-2013, Wickramaratne noted that improper activities took place at the CSE during the aforementioned period and the Central Bank decided to call for a forensic audit. He added that there were five major reports compiled in the aforementioned forensic audit. [caption id="attachment_114679" align="alignright" width="433"] FSP Education Secretary Pubudu Jagoda[/caption] “One such report deals with the investment by the Employees’ Provident Fund (EPF) and all the problems that involved the EPF funds. One of the issues that was investigated was pumping and dumping in the years between 2011 and 2013 during the earlier (Mahinda) Rajapaksa regime. The people responsible manipulated the market. The report very clearly narrates the manipulation that went on during the period where Mahinda Rajapaksa was the Minister of Finance,” he stated.  Wickramaratne, quoting page 259 of the forensic audit report titled “Final Report The Monetary Board of Sri Lankan by the KPMG (sic)” described how former Central Bank of Sri Lanka (CBSL) Governor Ajith Nivard Cabral “dodged” the inquiry on the issue of the EPF investment in the stock market and the consequent manipulations of the market when he was the Governor. “People in responsible positions of the calibre of (former) CBSL Governor Ajith Nivard Cabraal should at least have the decency to answer the questions that are raised. But this has been avoided by Cabraal as per the forensic audit report by KPMG,” the former State Minister added. Wickramaratne, quoting the report, stated: “Majority of the investments done by the EPF were during the period 2009-2013, when Ajith Nivard Cabraal was the Governor of the CBSL and the Chairperson of the Monetary Board. We have sent a written question to Cabraal through the CBSL on 3 October 2019 and have requested for a face-to-face meeting. There were altogether five occasions of communications that took place between the then Governor Dr. Indrajith Coomaraswamy and Cabraal. We do not have the benefit of his response. The CBSL should obtain his response to formulate a holistic view on these transactions.” The losses incurred by the EPF in equity investments have been specifically highlighted for listed and unlisted investments from the year 2011 to 2015, according to Wickramaratne. The EPF had invested a sum of Rs. 500 million in shares of SriLankan Airlines in July 2010, but no revenue was yielded since the investment. “The EPF had invested millions of rupees in the unlisted companies in the areas of power generation, airlines, hotels, and finance companies, and the EPF had not received any income in the form of dividends from the investments, since the date of investment, till 2016. “All in all, the EPF has incurred huge losses in millions of rupees by way of improper investments in the listed and unlisted companies that are engaged in loss-making areas, thus allowing those organisations to maintain its survival,” he added. 

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