Category: SEBI

I note that in the course of investigation, it was observed that Rakesh Jhunjhunwala interacted extensively with the media and was recommending many stocks in public forums. Shri Jhunjunwalla had attended conference of investors and fund managers conducted at the Indian School of Business, Hyderabad.  On examination of the transcript of the proceedings, it was found that Shri Jhunjunwalla had stated that he could get shares of NIIT at Rs.1000/- in 3 months time.  This statement was made on 6.4.2002 and the price of the scrip at that time was around Rs.230/-.  The RKJ Group had a holding of 5,13,565 shares as on 31.3.2002.

 It was observed that immediately after the comments of Jhunjhunwala at the conference, the price of the scrip rose from Rs.230/- on 8.4.2002 to Rs.350/- on 18.4.2002.  It was also noted that the shareholdings of the RKJ Group subsequent to the conference went upto 11,29,069 shares as on 1.7.2002.

 It is alleged that the broker had made the statement while he held substantial position in the scrip of NIIT and with intention of raising the price.

 In this regard, the group submitted that the conference organised by M/s. Capitalideasonline.com was a closed door conference and the general investing public were not invited nor did they have access to the proceedings in the conference till 3.6.2002.  They further submitted that full disclosure was made regarding the scrips owned by Shri Rakesh Jhunjhunwala when he made the recommendation.  In respect of the particular recommendation mentioned in the SCN, the group submitted that Shri Rakesh Jhunjhunwala had made the recommendation in view of the high leverage that NIIT had over the profits that they made and considering that the company would fetch a substantial price in the event of a strategic sale.  They further submitted that in respect of the four scrips upon whose performance the recommendations were made, the price had actually gone down.  The group also submitted that they were net buyers when the transcript of the proceedings of the conference were posted on the website and not net sellers as would be expected of a person who attempted to manipulate the price of the scrip through recommendations.

 I note that stock brokers and other intermediaries who indulge in manipulation make recommendations based on performance of a scrip.  A recommendation to purchase is made by such intermediaries when they wish to offload shares. Investors who believe in their recommendations purchase the shares they recommend thereby creating a demand and increasing the price of the shares.  The intermediaries then sell their shares at an increased price. Similarly, when such intermediaries want to buy shares, they recommend sale so that the price of the scrip falls owing to sell pressure and these intermediaries then pick up the shares at a reduced price. 

 I find that the submissions made by RKJ Group are acceptable and effectively address the allegation of price manipulation through the recommendations made by Shri Rakesh Jhunjhunwala.  The recommendation made by Shri Jhunjhunwala was to purchase the shares and they were not net sellers. Rather they were net buyers after the recommendation was made.-from SEBI