SEC orders stockbroker to compensate investor for first time ever

For the first time in its history, the Securities and Exchange Commission of Sri Lanka (SEC) has ordered a stockbroking firm to pay compensation to an investor, The Sunday Morning Business reliably learnt.

Capital TRUST Securities (Pvt.) Ltd., owned by Tushan Wickramasinghe, has been ordered by the stock market regulator to pay Rs. 6 million as compensation to its client for not acting in the client’s best interest in 2015.

Upon the directions of the SEC, the Colombo Stock Exchange (CSE) has also levied a fine of Rs. 100,000 from the firm.

The investor to be compensated is Reji Goonewardene, a former Finance Director at the Food and Beverages sector of John Keells Holdings, who had invested in the Colombo Stock Exchange through Capital TRUST Securities in 2015.

Stock market sources told The Sunday Morning Business that the initial complaint had been made by the investor to the CSE in 2015 but the CSE had not found the broker at fault.

Having lost confidence in the CSE, the investor had turned to the SEC but the then SEC Chairman Tilak Karunaratne had not acted upon the complaint. The complaint had been finally acted upon only once the current SEC Chairman Ranel Wijesinha took office in mid-2018.

However, when contacted, the SEC refused to comment on the matter and stated that an official communiqué will be issued in due course. Likewise, Goonewardene too refused to either confirm or deny the story when we reached her for comment.

This is the latest in a series of actions that have been taken by the SEC to penalise market wrongdoers.

On 25 July 2019, the SEC filed action before the Fort Magistrate’s Court against Lanka Kannangara, Fariq Furkhan, Kapila Senarath Bandara, and Raveendra Mallawarachchi for market manipulation, conspiracy to commit market manipulation, and aiding and abetting with respect to the shares of Radiant Gems International PLC (RGEM) listed on the Colombo Stock Exchange during the period of 2-29 September 2011.

The aforesaid defendants being investment advisors of different stockbroker firms had placed orders in the RGEM share using CDS accounts of certain clients of their respective stockbroker firms during the period of 2-29 September 2011, by the use of several manipulative devices. Such share trading executed by the aforesaid defendants has created a false and misleading appearance of active trading with respect to the market and the price of the RGEM share, in contravention of Rule 12 of Securities and Exchange Commission of Sri Lanka Rules published in 2001 (SEC Rules).

On 26 June, the SEC announced that it had filed action in Fort Magistrate’s Court against two investors on charges of having committed the offence of market/price manipulation with regard to shares of E-Channelling PLC.

Rule 12 of the SEC Rules published in the Gazette Extraordinary No. 1215/2 dated 18 December 2001 prohibits any person from creating or causing to create or from doing anything that is calculated to create a false or misleading appearance or impression of active trading or false or misleading appearance or impression with respect to the market for or the price of any securities listed on a licensed stock exchange.