DOING BUSINESS THE SEC CHAIRMAN'S WAY

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ARTICLE FROM THE SUNDAY LEADER BY RANJITH JAYASUNDERA :

Doing business the SEC Chairman's way

Evidence has surfaced that Dr. Gamini Wickremasinghe has in all probability taken advantage of another one of his triad of posts under the Rajapakse government, that of Chairman of the Securities and Exchange Commission (SEC.)

Earlier this year, The Sunday Leader had exposed the means by which Dr. Wickremasinghe had brought his influence at the bank to bear to benefit not just himself and his companies, but also the fleecing of the BoC of Rs 1.072 billion by Mihin Lanka.

At that time Wickremasinghe through the bank defended his actions and denied any wrongdoing and said no influence was used and that it was a straightforward business practice.

The SEC is entrusted with monitoring illegal transactions and activities on the Colombo Stock Exchange (CSE) and take action against those who break rules designed to maintain fairness and transparency in the share trading business.

The SEC has access to nearly limitless data that it uses to detect crimes such as fraud, and market manipulation. This data is archived over several years and can be used to prosecute those responsible for crimes months or even years after they had taken place. One bit of business that was flagged on the SEC radar was the sale of shares in Nawaloka Hospitals Limited after the company was listed on the exchange in November 2004.

'Share split'

A month later, the company issued what is known as a 'share split,' effectively increasing the number of shares the company has, whilst proportionately reducing the value of each share. When Nawaloka Hospitals Limited was listed on the exchange, the value of each share was about Rs. 20. A month later by the time of the share split, the stock 'value' was effectively doubled by the shareholders to Rs. 40.

After the share split, the value of each share of Nawaloka Hospitals Limited was around Rs. 3. But three months later when the company announced a rights issue - allowing shareholders to buy more shares at a preferential price in order to raise capital - the price of each Nawaloka Hospitals share had more than tripled to Rs. 9.75 each.

A 30% stake of Nawaloka Hospitals was then sold to the public, raising around Rs. 300 million on the Colombo Stock Exchange (CSE). To SEC investigators, this share price increase in the run up to the sale smelt fishy, so they began a probe into the price increases and the money gained from these transactions, scrutinising the dealings of the persons involved.

By November 2006, the SEC had collected enough evidence to initiate prosecutions against the family owners of Nawaloka Hospitals - former Cricket Board Chairman Jayantha Dharmadasa and his son U.H. Dharmadasa - as well as several of their relatives and employees. All in all nine people were charged by the SEC under Rule 12 of its rules read together with Sections 102 and 113B of the Penal Code, which allow 'conspiracy' to commit a crime to be charged as severely as having committed a crime.

Misleading appearance

D.A. Samaradiwakara, B.A. Jayasekara, U.H. Dharmadasa, K.M.N. Piyarathne, Michael de Saram, M.T. Ganhewage and L.C. Pallegedera were charged with 'committing acts to create a false/misleading appearance of an active share market.'

Jayantha Dharmadasa and Mahanama Jayaweera were charged with 'aiding and abetting' these seven persons 'to commit acts to create a false/misleading appearance of an active share market.' All nine of them were charged with 'conspiracy' to create a false market, and they faced fines of over a million rupees each and up to 10 years imprisonment if convicted.

The fact that the case was prosecuted in court was a hallmark for the SEC, which had up to then developed a reputation for 'compounding' offences and merely fining offenders without prosecuting them to the full extent of the law, in effect diluting its authority and reducing the risks for those trying to manipulate the stock market.

The case against the Dharmadasas and their accomplices sent a message that anyone could face a jail sentence for meddling with the system and that there was no easy way out. Enter the Chairman of the Securities and Exchange Commission, Dr. Gamini Wickremasinghe.

Dr. Wickremasinghe owns 90% of the shares in a company he founded, Informatics (Pvt) Ltd. Informatics in turn owns nearly 100% of another company, Visual Computing Systems (Pvt) Ltd. The Dharmadasa family owns a company called Nawaloka Developments (Pvt) Ltd.

Fine taste in exotic motor vehicles

Before their SEC and court woes, back in December 2003, the Dharmadasas - who have a fine taste in exotic motor vehicles - imported a brand new, fresh out of the factory, 'almandine black' 2003 model Mercedes Benz S280 (registration number HS-7777), in the name of Nawaloka Developments (Pvt) Ltd.

Since 2003, the duties and taxes levied on new vehicle imports have skyrocketed, creating a massive market for second hand super-luxury vehicles. So HS-7777 would fetch a much higher price in the local market today than that for which it was imported five years ago.

On August 9, 2007, whilst the court case between the SEC and the Nawaloka conspirators was pending, Nawaloka Developments (Pvt.) Ltd., transferred ownership of their Mercedes S280 (HS-7777) to Visual Computing Systems (Pvt.) Ltd., in which the majority of the shares are held by the SEC's Chairman, Dr. Gamini Wickremasinghe.

A few months later, on May 20, 2008 the SEC decided to withdraw the case against Jayantha Dharmadasa from the Fort Magistrate's Court, and allow him to get away with a mere Rs 3.3 million rupee fine, and avoid the possibility of a court imposed jail sentence.

Compounding the charges

Similarly, on August 21, the SEC announced that it was also compounding the charges against D.A. Samaradiwakara and B.A. Jayasekara and allowing them to pay just Rs 3.3 million rupees each to get out of court. The commission is well within its powers to compound offences under Section 51A of the SEC Act, but the conflict of interest cannot be missed.

A court could have fined Dharmadasa, Samaradiwakara and Jayasekara Rs. 10 million each (Rs. 30 million in total), and put them each behind bars for up to five years. Instead, the SEC got a relatively paltry Rs 9.9 million and Dr. Wickremasinghe got a super-luxury Rs. 25 million Mercedes Benz. What price was actually paid for the vehicle is not known because Wickremasinghe on being asked by The Sunday Leader did not consider it necessary to disclose that fact in the name of transparency stating it was a private matter.

The vehicle is often seen parked outside the Bank of Ceylon Headquarters, and is the primary vehicle used by Dr. Wickremasinghe. When he spoke to us, however, he denied that there was any wrongdoing on his part, and claimed that the transaction did not realistically involve Nawaloka Developments, as he believed he was buying a vehicle used by the Ven. Uduwe Dhammaloka Thera, through a Dimo agent. Dimo is the agent for Mercedes Benz in Sri Lanka (See box for full explanation).

"Contact Dimo"

Although Dr. Wickremasinghe urged us to "contact Dimo" and said that they will back up his version of events, this is not what happened. When The Sunday Leader contacted senior Dimo Sales Advisor Roshani Dharmaratne, she did not confirm the SEC Chairman's story. "That is not valid," she said of his explanation, adding only that she did not want to comment further.

We were unable to contact the Ven. Uduwe Dhammaloka Thera for comment, but there is nothing to link him to this transaction apart from the word of Dr. Wickremasinghe, as Dimo also was unable to verify his story and records from the Department of Motor Vehicles (DMV) showed that the vehicle's only two owners have been Nawaloka Developments and Visual Computing Systems - effectively demonstrating a transaction between the Wickremasinghe and Dharmadasa families albeit through corporate channels.

It is also questionable as to whether the arithmetic used by the SEC in compounding the offences was valid. All the SEC press releases about the compounding of these offences stated that Rs. 3.3 million was "1/3rd of the maximum fine imposable for the offence."

This is true, as according to the SEC Act, each offence can lead to a fine of up to Rs. 10 million rupees or a five year jail sentence. But Dharmadasa, Samaradiwakara and Jayasekara were charged with two offences each, and if prosecuted together could have led to fines of Rs. 20 million each and up to 10 years in jail.

Links with the first family

Although just as in the BoC, Dr. Wickremasinghe's actions are above questioning within the SEC since his links with the first family are well known, other government investigators have picked up on the Nawaloka Benz transaction and have begun to delve into the SEC Chairman's dealings.

It is also a strange coincidence that Dr. Wickremasinghe - who is related to the first family - is very closely related to the Chief Financial Officer (CFO) of Nawaloka Hospitals, albeit by marriage. Nawaloka's CFO, Jayantha Perera, is married to Dr. Wickremasinghe's daughter Kishani, completing a tangled web of conflicts of interest in the SEC's case against the Dharmadasa family and their accomplices.

Among other dealings, government investigators have found that Dr. Wickremasinghe's Informatics (Pvt) Ltd., owes over Rs. 40 million in back taxes to the Inland Revenue Department. We were shown documentation (published on this page) detailing the taxes owed to the government from the SEC Chairman's company some of which date back to 2002.

Informatics owes over Rs. 2.6 million in income tax, Rs. 7.8 million in PAYE tax and a colossal Rs. 28.5 million in VAT to the Inland Revenue Department. We were also provided with other details which cannot be published lest they compromise the ongoing investigations.

Replaced as chairman

Last month, Dr. Wickremasinghe was replaced as Chairman of the Insurance Board, leaving him in command of only two very powerful state financial institutions, the SEC and the Bank of Ceylon, both at which his conduct has raised more than a few eyebrows as revealed on and off in this newspaper.

It would be surprising if action against Dr. Wickremasinghe will be taken given that his relationship with the first family stretches over decades. When Gotabaya Rajapakse retired from the army, Dr. Gamini Wickremasinghe provided him with a job in Colombo before he migrated to Los Angeles.

The now incumbent Defence Secretary has since returned the favour. Dr. Wickremasinghe's brother Jayantha, is now employed as the Chairman of Lanka Logistics and Technologies Limited (LLTL), the Defence Ministry's private arms procurement company.

Wickremasinghe of course explains the tax issue on the basis of problems faced by most companies today due to the economic environment but that again is nothing but a severe indictment on the government he serves.

"I did not know of Nawaloka Link"

According to Dr. Gamini Wickremasinghe, the Benz was purchased by Visual Computing Systems through an agent affiliated with Dimo. "At the time, it was being used by the Ven. Uduwe Dhammaloka Thera," he recalled.

Dr. Wickremasinghe told The Sunday Leader that it was only when Visual Computing had purchased the vehicle, and was arranging the transfer of ownership, did they realise that it was still registered under the name of Nawaloka Developments. He said that he was not aware until this time that Nawaloka had anything to do with the transaction being made.

The SEC Chairman denied that there was a conflict of interest in this transaction, as he said it was between himself, Dimo, the agent who sold him the vehicle and Ven Uduwe Dhammaloka Thera, and that there was no real transaction between Visual Computing Systems and Nawaloka Developments.

With regard to the outstanding taxes owed by Informatics, he said that "every company today is having problems like this," and that today due to the situation in the country his companies are finding it difficult to even pay the employees' salaries on time. "We are negotiating with the Inland Revenue on these matters, but it is not specific to us. If someone wants to sling mud, they can easily always find things like this to dig up on anyone."

I AM BRAINLESS, SO PLEASE EXCUSE ME !!!!!!