You may or may not be aware that CSFB is still unable to trade in India.

CSFB was the most high profile of those accused of 'bear hammering' the Indian stock market in March in what became known as the Indian Scam. It has stayed in limbo for eight months, waiting for a Special Enquiry Officer to give its verdict on the findings of local securities regulator, SEBI.

And while CSFB retains 35 staff in India (doing nothing), there is still no indication when the verdict will be given and whether it will be banned for good.

As an international powerhouse, CSFB is the most high profile of those accused by SEBI. However, several local houses have also suffered the same ban, and obviously it has had a crippling effect on their businesses. Without being found definitively guilty they are dying a slow death.

One of these, First Global has finally had enough.

FinanceAsia has been passed a very interesting 68 page document written by First Global that not only casts aspersions on SEBI's investigative methodology, but says the whole process has been a farce from the start and that it has only served to demonstrate how little SEBI understands about the way financial markets work.

First Global is a securities firm run by Devina Mehra, and Shankar Sharma, a Dean's list MBA from the Asian Institute of Management. Before the Securities and Exchange Board of India's (SEBI) ban, the firm had 17 offices in India and was a member of the London Stock Exchange.

It employed 250 professionals, but has since had to lay off nearly the entire workforce.

It was accused of precipitating the "March crash" along with a couple of other firms, including CSFB. However, it is adamant the crash should never have been investigated in the first place.

The crash happened on March 2 and saw the Indian stock market index plunge 3%. However, First Global points out that the Indian stock market has had single day falls of 3% more than 135 times in the past 12 years and none of those were investigated. Why was this so special?

"In no place does SEBI mention why this probe into the 3% crash of March 2 had to happen in the first place," says First Global's 68 page document. The index 'crashed' 157 points on March 2, but on February 29 2000, it fell a much greater 520 points (and again, after the government budget). This did not lead to a probe. Nor was it deemed a crash when the index fell 291 points on April 17, 2000; 285 points on May 2, 2000; 275 points on July 24, 2000; or on many other occasions where single day falls far exceeded that of March 2, 2001.

First Global says that it believes the investigation was politically motivated. "Why did an innocuous 3% fall in March raise such a hue and cry? We never heard this collective cry of 'bear cartel' ever before. In fact, the March 2 crash does not even feature in the 125 largest single day falls in the history of the Indian capital markets!"

On February 28 the market rose 178 points; on March 1 it rose 25 points; and then on March 2 it fell back 176 points.

On March 3 the Economic Times of India reported that Nirmal Bang, Ajay Kayan, First Global, and RK Damani were part of a bear cartel that was to be investigated by SEBI.

Says the First Global document: "Now this is interesting. Our limited knowledge of journalism tells us that the Economic Times story would have been filed around 8pm on March 2, barely hours after the market's close at 3pm. That very night we received a fax from the National Stock Exchange (NSE) informing us that they would come to inspect our books on March 3.

"This is really curious. How did the Economic Times get these names that early in the evening of March 2? How did these names get shortlisted in the first place, either by SEBI or the exchanges? And how, by 6pm or 7pm?

"Nobody has asked the simple question: how did SEBI or the Exchanges arrive at the shortlist? What objective statistical, data-based measures were needed to arrive at the shortlist? What sorting criteria were used?

"We have written dozens of letters to SEBI, NSE and BSE [Bombay Stock Exchange] asking them as to how First Global, a buyer on the crucial days of Feb 28, March 1 & 2 got shortlisted as a Bear. SEBI, of course, has never bothered to reply. It took 11 reminders for the BSE to reply."

It quotes the BSE as replying: "Kindly refer to your letter dated August 6, 2001 on the captioned matter. In this connection, please note that the criteria for shortlisting a broker for any inspection  is internal to the Exchange and the same is not required to be disclosed to the member."

First Global says that nowhere in SEBI's 1500 word report does it say why First Global or any of the others were chosen for investigation. "The truth is," it says, "there was no science followed in the short-listing process at all. There was no sorting done for large sellers on March 2."

Furthermore, it says that SEBI's claim that it chose to investigate because of "excessive volatility" is statistically flawed.  First Global says that the daily volatility of 4.77% in March was actually lower than that in September 2000 (5.65%), July 2000 (5.90%), May 2000 (5.02%) and April 2000 (6.43%).

First Global then goes on to attack the language with which it was accused. SEBI makes the comment about its trading: "These sales could have definitely impacted on the price fall in the scrips and are indicative of manipulative trading."

Says First Global: "How can something be 'could have' and also be 'definitely'? And on this basis, SEBI bans people? This point is not as frivolous as it seems. Unless there is compelling proof of malcontent, to base conclusions on wild conjectures are totally contrary to all principles of justice."

It continues its diatribe on the 1500 page SEBI report: "The maze of data is impressive and contains pages of computer printouts. To any lay observer, a wealth of information on manipulation. To any reasonable market professional, merely transaction sheets that could be got from any broker and they would all look alike.

In the section about itself, First Global is (obviously) quite vocal: "The section is replete with falsehoods. Large buys have been shown as sales. All these have been highlighted by us to SEBI. And mind you, they are not minor 'errors'. How can a 600,000 shares sale in Satyam that never happened be called 'miniscule' as SEBI puts it?

"Even after SEBI extended its investigation to a one-month period from mid-February to mid-March, SEBI found that of the 22 trading days in this period, First Global was a net buyer for 11 days, net seller for 11 days and on a cumulative basis bought Rs18.1 crores of stock. Of course, being SEBI, it ignored all buys and called this a 'consistent pattern of selling'."

First Global says some wild conclusions are also drawn. It quotes SEBI as stating that First Global had been guilty of "instances of unloading of previously built long positions obviously with the intent to hammer the scrip prices."

Says First Global: "Make of this what you will. Unless the trader is completely insane, or on drugs, he will never unwind a long position in a manner that depresses prices, as it will only serve to increase his losses."

And it continues: "The most amazing allegation is that First Global 'exceeded the gross exposure limits at the BSE on certain dates & to the extent of Rs12.15 crores on Feb 23'. Now, nobody can exceed their allotted exposure limit even by a rupee, as terminals automatically get switched off. And our market regulator doesn't know this? God help us all."

And it asks why were only a few singled out and barred when the SEBI report finds many who, by its definition, were manipulating the market? On JM Morgan Stanley, for example, SEBI's report says: "A limited review of the trading of the member shows instances of transactions which appear to be of a manipulative nature and could have impacted the decline in certain scrip prices."

Of BLB Group: "There are indications of a large portion of these sales were naked short sales, which apparently were made with a manipulative intent to depress stock prices."

None of the above were debarred like CSFB or First Global under Section 11(b) of the SEBI Act.

"Most intriguingly, the only reason for the probe is not dealt with at all: who sold on March 2 that caused the famous crash? There is no section of [the SEBI report] that deals with this core, central issue at all. Who were the largest sellers on that one day? SEBI goes into a nonsensical whirlwind tour of all possible crimes that can happen in the market: circular trading, time slots, carry forwards, OCBs, broker-banker nexus, etc. But it simply ignores or deliberately chooses to remain silent on the only issue that kicked this probe off. Wouldn't the authorities want to know a scientific, statistical answer to this all important question?"

Moreover it says: "SEBI has mentioned the term 'circular trading' numerous times in the Report. However, nowhere in the SEBI Act is the term 'circular trading' defined! This is not as ridiculous as it seems: it's actually convenient for SEBI not to define circular trading. Then it can keep labeling just about any trade a circular trade: an arbitrage trade, a BSE-to-NSE shift trade, a broker-to-broker transfer trade "

To add colour to this, First Global describes an incident that occurred while it was in the SEBI offices: "We'd gone to the SEBI offices and were asked to wait in the important sounding 'Market surveillance cell'. It's basically a cramped area of the office with a few desultory men sitting and sifting through masses of computer printouts. We couldn't help but overhear bits of their conversation.

"One SEBI guy asks another SEBI guy, who is clearly the veteran surveillance man, 'Can you explain what kind of trade this is: a broker buys 10,000 Satyam on BSE at 11am and sells on the BSE itself at 11.45am?' The veteran replies, 'That's an arbitrage trade.' A while later, the same guy asks the pro another question, 'Boss, what's this trade: the broker buys 10,000 HFCL on BSE at 11am and sells the same on the NSE at 11.01am?'

"Now the pro has nothing but contempt for this other guy. He says, 'This is so simple - it's a straightforward circular trade.' We swear this happened, in front of our eyes, in the bowels of the SEBI office. And with this bunch, we want to create effective policing for the derivatives market. God help us all."

What is the conclusion of First Global's document? It is convinced that the whole thing was politically inspired. Is it a coincidence, it says, that it was singled out given that First Global's Shankar Sharma was the main financier behind Tehelka.com, the internet site that shocked India with its thorough expose of government corruption in defence procurement?

"It was all about a tehelka-ridden vendetta," it concludes.

While Sharma will watch his firm disintegrate, fellow bear and SEBI-accused, Nirmal Bang will not, since he has died. Bang died about a week ago when his car overturned at Gahunj village near Talegaon. One of his tyres burst en route to Mumbai.