Pyramid Saimira Forgery: A historical perspective

The Securities and Exchanges Board of India (Sebi) has blown the lid off a forgery masterminded by the promoter of Pyramid Saimira - Nirmal kotecha and the investigations have revealed a nexus between him, Rakesh Sharma, an ex-employee of a PR agency, journalist Rajesh Unnikrishanan and a few market operators.

Sebi has banned Nirmal Kotecha for masterminding the forgery of a Sebi letter. It has also barred another promoter PS Saminathan for spreading misleading information.

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Here is a verbatim transcript of Vivek Law's comments on CNBC-TV18. Also watch the accompanying video.

A completely bizarre set of developments if one looks at this entire 50 plus page order. Back to December 21-22, there were two sets of stories that appeared in various newspapers that talked of a Sebi order to the promoters of Pyramid Saimira to make an open offer because they had violated certain takeover norms on creeping acquisition.

Background of the forgery

On December 22, which was a Monday, the market opened and the stock was up 10%. The share at that time was trading at roughly about Rs 70. The open offer was sought to have been directed by Sebi allegedly at Rs 250. So, quite clearly the stock shot up in the morning. By about 10:30 am, the Pyramid Saimira management said they had not received any such letter from Sebi. By the end of the day, the stock was down about Rs 10.

This is important because this is why this entire forged letter of Sebi activity was done. Let me break this up into two. First, why was this done and how did the forged letter activity happen. Why was it done seems pretty clear from the Sebi investigation. Nirmal Kotecha through his maternal uncle made a gain of Rs 20 lakh according to Sebi on just that one day. Nirmal Kotecha according to Sebi's investigations was a buyer in the Pyramid Saimira stock for several months, and on December 22 he was the highest net seller. Sometimes the percentage went up to even as high as 40-50%, his percentage of the total net sales.

He transacted not just on his own name, he was transacting through several people. One of them was his maternal uncle and even just in that one period the gain itself was Rs 20 lakh. Quite clearly, according to Sebi, Nirmal Kotecha was building up his positions in this particular stock. This was really what it appears like a last ditch attempt to shoot the stock price up and get out of it.

People involved in the forgery

There were some other people he used as well. There are 230 entities who have been put out of the markets by Sebi for having been hand in glove through either banking or share transactions through Nirmal Kotecha.

There was another person called Amol Kokane. He is an engineering student who lives in Navi Mumbai. He was using the phone, which Kotecha claimed was his mobile number. This boy's brother-in-law, who died in an accident in November last year was actually working for a broking outfit and he was really a front for Kotecha, as Sebi brings it out in its order. He was really the person who had given an absolute free-run to Kotecha to operate the demat accounts and the transactions were being done on the brother-in-law's name. When the brother-in-law died it got transferred on to Amol Kokane's name. His family income was Rs 1-5 lakh but his mobile phone bill per month was Rs 40,000. What has really happened therefore? There are heavy cash transactions by Kotecha, even as on the day when this whole forged letter was being drafted.

On next page: How did the forgery of the letter happen?