SEBI claims First Global was part of a bear cartel; others, that it knew about Armsgate. The truth...

By Roshni Jayakar & Suveen K. Sinha

Late in the night of March 12, Tehelka's Editor-in Chief Tarun J. Tejpal made two calls to Mumbai while putting the finishing touches on the Westend Tapes that would be aired, with extreme consequences, the following afternoon. One was to film star Amitabh Bachchan; the other to Shankar Sharma, the CEO of First Global, which has a 14.5 per cent stake in Tehelka; and both were told that the news site would break a story that could well make things unpleasant for the Government. ''I did not tell them any of the details,'' says Tejpal. ''But I felt obliged to alert them slightly in advance. One is a public figure, the other, a market operator, and both are directors on my board.''

People suggesting the existence of a conspiracy theory of sorts linking the timing of the story's release to the stockmarket's bottom-trawling behaviour will probably greet this revelation with a knowing nod of the head. ''Didn't we say so all along?'' they'll tell anyone who cares to listen, strictly off the record, of course. There's no proof; Tejpal insists that Sharma wasn't aware of the investigation; and Sharma himself denies that he had any knowledge of what Tehelka was doing. ''The first time I knew about the Tehelka tapes was when I saw them on television, and we said, ''Why now? Now we're screwed''.''

Sharma's response was natural. On March 3, the Securities and Exchange Board of India (SEBI) alleged that First Global was part of a bear cartel that had sold heavily on February 28, and March 1 and 2, contributing to the market crash. Sharma must have known that his link with Tehelka wouldn't do his case any good. For the record, he maintains that ''First Global was a net purchaser to the extent of Rs 14.21 crore on February 28, and on a cumulative basis for three days (Feb 28, and March 1 and 2) we purchased Rs 10.89 crore of stock''. Fine, First Global could have been a net purchaser, but if it had sold tech stocks, and bought old economy ones, the index-which is heavily weighed towards the former-could have headed south and the markets, crashed.

Purely Circumstantial...

...and by a long shot-that's the evidence against Sharma. First, the man is supposed to have turned from bull to bear in July 2000, just around the time Tehelka started work on its investigation. Second, First Global, says one fund manager, came out with a buy-recommendation on Zee Telefilms at a time when every other analyst was recommending a sell. For those who have difficulty making the connection insinuated by the fund manager, Zee is picking up a 26.1 per cent stake in Tehelka, and a chunk of this will come from First Global, which is diluting its stake by 10 per cent.

Sharma's defence is that he didn't attend a single meeting of the Buffalo Networks (Tehelka's parent company) board and had no editorial influence. That's strange behaviour for an angel investor but, in all fairness to Sharma, the magnitude of the investment-Rs 3.2 crore-may have had a role to play in it (the man is reportedly worth Rs 1,500 crore).

That's a more-than-passable achievement for a man who founded First Global Securities as a proprietory firm in September, 1989, when he quit Citibank. In the 11 years since, he's established a stockbroking subsidiary in London, and is in the process of setting up another in Mauritius. As this article went to press, SEBI and the Income Tax Department were questioning Sharma over his role in the crash and possible tax-law violations, and the former had reportedly put on hold the granting of a deemed FII status to First Global.

Sharma insists there were strong reasons for him to turn bearish when he did. ''We've had a negative view of technology for over a year. In July, 2000, in a note to investors, we said the NASDAQ could top out at 4,000, and that this strengthened our bearish view on Indian tech stocks. A number of our clients saved millions by selling their tech holdings at prices 100-500 per cent higher than today's.'' But if First Global had predicted a downturn in tech stocks, why does Global Telesystems remain on its buy-list?

Sharma is also quick to refute the allegation that First Global was part of a bear cartel. ''We pride ourselves on being unbiased.'' Adds Devina Mehra, Director, First Global: ''We are being penalised for reading the market right.'' Critics point to the several wrong calls First Global has made, but the company's Shadow Fund, created on May 23, 1997, has given investors returns in excess of 260 per cent. Curiously, in its February 14, 2001, newsletter to investors, First Global mentions that ''our take is that, overall, for the next few months, old economy stocks will outperform new economy stocks. We believe mainline it stocks, Wipro, Infosys, and Satyam will test and even break previous lows. Given this, we have exposure only in tech stocks where we think the risk-reward (equation) is favourable''. Now whether this prescience stemmed from market-knowledge or a bear-cartel's plottings is something for SEBI to figure out.

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