The Economic Times reports that SEBI has issued a circular which requires companies with less than 25% public float to raise funds through public offering of securities rather than through private placement to institutions, or QIPs. This is with a view to increasing the public holding in listed companies and to contain stock price manipulation.
SEBI’s move comes close at the heels of its order on another matter involving unlisted companies in the Sahara group who were purportedly raising finances from a wide group of investors without following the process required for a public offering. That order has, however, been stayed for the time being by the Allahabad High Court.
These measures indicate SEBI’s preference for a public offering process, when the situation so warrants, so that the securities are issued through a transparent process using a disclosure document that subjects issuers and related parties to appropriate liabilities for misstatements.
Interestingly, the urge to introduce transparent measures for primary securities issuances and secondary market trades is not unique to SEBI. The SEC in the US is faced with similar concerns with widespread trades involving high-profile companies such as Facebook, Twitter and LinkedIn, which are yet to float their shares widely through IPOs.
Showing posts with label SEC. Show all posts
Showing posts with label SEC. Show all posts
Should Shareholders Pay for Corporate Misconduct?
The U.S. SEC’s settlement last week with Citigroup has revived the debate about the efficacy of payments by way of settlements, fines and penalties by companies as a consequence of breaches of law. Under this settlement, Citigroup is required to pay $75 million for making “misleading statements about the extent of its holdings of assets backed by sub-prime mortgages in earnings calls and public filings”, thereby affecting the interests of its shareholders. SEC also settled with two of Citigroup’s officers – Gary Crittenden who has been penalized to the extent of $100,000 and Arthur H. Tildsley, Jr. $ 80,000 – sums which are trifling in the context of the overall settlement.
New York Times’ Andrew Ross Sorkin asks whether it is fair to expect the shareholders to bear the burden of the payment when they themselves have been victims of the lack of proper disclosures. In other words, would shareholders not suffer a double-whammy – once when they were kept in the dark and next when they bear the impact of the fine paid by the company? Others find merit in the approach that involves penalizing the company and not just its directors or officers – using a blend of legal and economic analysis.
Similar issues arise under corporate law and governance in India as well. For example, one of the key deterrents used by SEBI and the stock exchanges against breaches of corporate governance norms is the threat of delisting (which has also been exercised on occasion). Even here, it is the shareholders who suffer due to the loss of liquidity in their shares although they are they are not involved in the breach. Similarly, under principles of corporate criminal liability, it may not serve as adequate deterrent merely for the company to be held liable, but it would be necessary for directors and officers responsible for the misconduct to be made liable too. However, there is some evidence in practice to indicate that responsible individuals tend to go scot free, while the companies bear the burden of fines and penalties. The problem may get compounded if the companies plunge into bankruptcy, as they often do in the aftermath of an epochal crisis afflicting it, which makes any recovery difficult, if not impossible.
New York Times’ Andrew Ross Sorkin asks whether it is fair to expect the shareholders to bear the burden of the payment when they themselves have been victims of the lack of proper disclosures. In other words, would shareholders not suffer a double-whammy – once when they were kept in the dark and next when they bear the impact of the fine paid by the company? Others find merit in the approach that involves penalizing the company and not just its directors or officers – using a blend of legal and economic analysis.
Similar issues arise under corporate law and governance in India as well. For example, one of the key deterrents used by SEBI and the stock exchanges against breaches of corporate governance norms is the threat of delisting (which has also been exercised on occasion). Even here, it is the shareholders who suffer due to the loss of liquidity in their shares although they are they are not involved in the breach. Similarly, under principles of corporate criminal liability, it may not serve as adequate deterrent merely for the company to be held liable, but it would be necessary for directors and officers responsible for the misconduct to be made liable too. However, there is some evidence in practice to indicate that responsible individuals tend to go scot free, while the companies bear the burden of fines and penalties. The problem may get compounded if the companies plunge into bankruptcy, as they often do in the aftermath of an epochal crisis afflicting it, which makes any recovery difficult, if not impossible.
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