SEC Secretariat wins round one

The Securities and Exchange Commission Secretariat has won the battle against the SEC's own Commissioners to maintain its independence and proceed with the normal course of inquiry in its investigations into the alleged insider dealing case involving shares of Aitken Spence, but the war seems to be far from over.

The fiasco had revealed and highlighted an internal power struggle between the SEC Secretariat and the Commissioners, some of whom the Director-General Dr. Dayanath Jayasuriya himself has said have serious conflicts of interest in taking part in deliberations concerning the insider dealing probe.

It also revealed a deep spilt between the private sector representatives on the Commission, who could be said to represent the 'old guard' in the corporate world and who appear ready to fight on despite serious concerns about their credibility and the manner in which they acted in this investigation, and the ex-officio members representing the government.

The differences of opinion between SEC Secretariat and the Commissioners were serious enough for the Director-General Dr Dayanath Jayasuriya to give his resignation in which he complained of biased leaks of information to the media which affected his own and the Secretariat's credibility and of not being allowed to answer the allegations since he was gagged by the Commissioners.

He even went to the extent of saying that “some” of the Commissioners had assumed powers of the Secretariat to which they were not entitled and refers to the “bizarre” and “unprecedented” decision of “some” members to seek a second opinion on the A-G's advice that there was a prima facie case against the accused.

There had been much heated debate, threats and table thumping at Commission meetings, which discussed the probe into insider dealing allegations against Mack.
SEC chairman Michael Mack resigned last week saying he was innocent, and alleging he had not been told of the allegations against him, and that he had not been given a fair hearing.

Dr. Nihal Jinasena, who acted as chairman of the Commission after Mack had taken leave of absence following the revelations of the alleged insider dealing allegations against him, declined comment and said that “ all the Commissioners are of the view that we should stick to press releases and not say anything more.”

Asite Talwatte, who is a member of the Commission in his capacity as the president of the Institute of Chartered Accountants of Sri Lanka, also declined comment on the probe and said he has no intention of resigning.

The SEC statement only said that it considered the advice of the Attorney-General K.C. Kamalasabayson on January 27 on the alleged insider dealing in shares of Aitken Spence and Company Ltd. by Mack and two ex-directors of the company, and that the Commission would proceed to institute legal action against Mack and Norman Gunewardene and serve a show-cause notice on Manil de Mel as to why legal proceedings should not be instituted against him under the SEC Act.

The AG went to the extent of rapping the Commission, saying it has “acted improperly” in getting a second opinion despite the original ruling by the A-G's Department. He also rejected charges by the so-called independent panel of experts, consisting of People s Bank chairman Lal Nanayakkara and former judge Stanley Goonewardene, and counsel for accused Romesh de Silva, that the Secretariat had suppressed documents and tried to mislead the AG's Department.

Two of the private sector members of the Commission, Cubby Wijetunge and Hemaka Amarasuriya have openly challenged the AG's opinion on the issue and the decision to prosecute Mack, with Amarasuriya resigning immediately before the Commission decision to go ahead with the prosecution and accusing the SEC Secretariat, on which he had served for the past two years, of not knowing how to carry out a proper investigation.

The Commissioners meeting on January 27, to discuss the AG's ruling, began at 5.00 p.m. and went on till past 6.00 p.m. with some members, even at that stage, arguing that there was no need to accept the AG's advice and go ahead with the prosecution, despite Finance Minister K.N. Choksy's direction to the SEC to abide by the opinion of the Attorney General as he is the principal legal officer of the state.
The AG's opinion was sought on the “second opinion” given by a so-called two-man independent panel consisting of Nanayakkara and Goonewardene, which cleared the accused of any wrongdoing and cast aspersions on the SEC Secretariat.

This panel reviewed the SEC's investigation into the sale of Aitken Spence shares in May and June this year by the three former directors of the company and their relatives following the initial advice from the AG's Department that there was a prima facie case against the accused.

This second opinion was sought and the SEC investigation halted just as it was about to issue notice of action against the accused.

The decision was taken by the Commissioners and the SEC Secretariat was unaware of the basis on which the two-man panel was selected. It has been unable to reveal any information because of a gag imposed by the Commissioners.

Legal sources said the proper procedure would have been to proceed with the notice of action and for the accused to have responded with their explanations.

Before giving his opinion, the AG received submissions from the SEC about the report of the independent panel, which gave the “second opinion”, as well as counsel for the accused, Romesh de Silva, PC, who had earlier been given an opportunity to make representations to the AG's Department on behalf of his clients at the outset of the probe, a privilege not given to other accused in SEC investigations.

The investigation centres largely around the timing of the sale of shares with the accused alleged to have sold at a time they were privy to price sensitive information about losses sustained by the company following a big fraud, criminal activity and alleged exchange control violations at its Aitken Spence Garments subsidiary.

The extent of the fraud and criminal activity and the losses at its garments subsidiary was discussed and decision taken to sack the foreign CEO and take over the operations of the factories at an Aitken Spence Board meeting on May 14.

At this meeting Aitken Spence chairman Prema Cooray said the financial position of the garments subsidiary was “weak” and that all lending banks had “expressed concern” over its future.

Internal company correspondence spoke of concerns that the subsidiary was insolvent with the losses bigger than original thought.

On May 22, a memo to the main Board gives an indication that the company appeared confident of turning around the garments subsidiary in the early stages before the audit investigations revealed the extent of the fraud and the possibility that the losses could be far more than originally anticipated.

It speaks of hopes of getting new orders and of the need to reopen the troubled garment factories. However, subsequent investigations revealed that the fraud and losses were more serious than though. Another memo to the main Board on May 30 said that the garments subsidiary was insolvent.

The position was so bad that it called for urgent meeting of the main Board of directors of Aitken Spence to “protect the interests” of the parent firm and of the Board of the garments subsidiary to discuss its future.

The memo described the situation as “extremely frightening and alarming.”

At least one of the ex-directors of Aitken Spence, namely Norman Gunewardene, thought it fit to return internal company correspondence concerning the fraud and the losses in the garments subsidiary without reading the letters because he thought the information could be sensitive and he had put his shares on the market.

In a letter dated May 31, Gunewardene refers to the May 30 memo to the Board about the situation in the garments subsidiary, which he said was delivered open and returns it saying that the “less I know about this issue the better.” Similiarly, Gunewardene in a June 4 letter to the chairman Prema Cooray, returned a note about the garments subsidiary, saying he does not want to be “privy to sensitive information, good or bad” and that it was not correct for him to attend Board meetings. But there is no mention of Gunewardene not reading the memo sent on May 22 by Ranjan Casie Chetty to all the Board members in which the situation at the garments subsidiary was discussed. Nor is there any indication to say that Michael Mack, who also sold his shares during that period, declined to read the correspondence about the garments subsidiary that had been circulated among Board members.

Importance of knowing the workplace culture

A top management professional said last week it was important for managers to understand the culture of their workplace in order to be successful.

"It is very important to understand the culture of your organisation,” said Dian Gomes, Group Director of MAS Holdings and Managing Director of Sara Lee Courtaulds/MAS Holdings (Pvt).

“Once the manager understands the culture it is easy for him to identify the correct tools to direct the organisation towards success," he told the monthly meeting of the Sunday Times Business Club, held on January 29 at Trans Asia.

“By aligning the correct tools a manager could drive the organisation towards success." Gomes, who is also the former president of CIMA Lanka division, said that from his personal experience he has identified key factors that can help a manager lead the organisation towards success. “Work on the emotion of your workforce, make them feel good," he said.

Through his experience of managing large workforces he said, "Divide your workforce into groups and make them compete against each other.

This would not only increase productivity, the employees will also achieve the targets set by the management." Gomes, who handles a cluster of companies including Slimline and Unichella with a combined workforce of 7,000 under the MAS Holdings umbrella, spoke of his own experiences of turning these companies into world class firms. Trans Asia, the hosts of the Sunday Times Business Club, gave away two free meal vouchers to Dieter Hamer and Vinod Samarawickrama who won the business card draw.

The Sunday Times Business Club, made up of young professionals, meets once a month at the Trans Asia hotel providing an excellent opportunity for members of the business community to meet other members and share their experiences.

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