‘State Banks Meeting’ and Ravi coming to reside at Penthouse

Published : 9:15 am  October 11, 2017 | No comments so far |  | 


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happened in the same month: ASG Dappula De Livera


  • Daily reports on EPF T-bond transactions to Mahendran did not carry the particular transaction dates
  • 89% of profits from secondary market transactions in November, 2015 were gained by PTL
  • PTL recorded a significant Rs. 2.5billion capital gain in November, 2015
  • Report on the PDD on sight investigation into PTL not presented to Monetary Board


By Shehan Chamika Silva 

Additional Solicitor General Dappula De Livera yesterday pointed out that the two events where Minister Ravi Karunanayake held the state banks meeting asking them to bid at a lower rate and the Minister’s family coming to reside at a Penthouse apartment, had happened in the same month, suggested that Arjun Aloysius had fixed the March 29 and 31 auctions with the assistance of the former Finance Minister.

Continuing the cross-examination of former Governor Arjuna Mahendran, Deputy Solicitor General Milinda Gunatilleke yesterday initiated the proceedings stating that 70% of the bonds issued at the controversial bond issue (Rs. 10.05 billion) on February 27, 2015 had ultimately ended up with state institutions (EPF, SLIC and UGC Provident Fund) by September 2015 after the trading of those bonds in the secondary market.

 LATE-CITY-DM-1-9During further cross-examination by DSG Gunatilleke it was revealed that there was an on-sight examination carried out by the CBSL officials against Perpetual Treasuries Ltd (PTL) in November 2015. 

In this examination the CBSL Public Debt Department (PDD) officials had found a series of violations on PTL’s part. Based on that examination the Officials had sent a letter to PTL seeking explanations for those violations.
DSG Gunatilleke also questioned the witness based on the response given by PTL to the CBSL  during the examination. The DSG said that PTL had acknowledged some violations in the Lanka 
Settle System.

However, the witness gave his explanation on the violations that came out with regard to the LSS and said he could not comment on it without referring to more data.

He said that there were several Primary Dealers at that time facing allegations similar to what PTL was facing in connection with the LSS.

“There were malpractices going on in the market. I don’t deny that. But we were aware of them and discussed them at the Monetary Board meetings. That is why there was a direction that came later asking all primary dealers to adhere to LSS requirements”, Mahendran said.

DSG Gunatilleke: Did this report about the on sight examination come to the Monetary Board?

W: I’m not sure about it because if so I would have recused myself from that Monetary Board meeting.

DSG: At your time PTL was not suspended, right?

W: Not suspended


The witness was of the view that PTL was facing allegations similar to what other primary dealers had at that time. According to him the Monetary Board had prioritized an issue relating to a Primary Dealer called ‘Entrust’ at that time, where the CBSL had to pay over Rs. 2 billion to that Primary Dealer.

However, DSG Gunatilleke said that PTL had been suspended from its activities in the latter part of 2016 and later in July 2017 the CBSL suspended its Primary Dealer license.

DSG Gunatilleke was of the view that the current Monetary Board had also paid concern to the on sight examination report of PDD regarding PTL when deciding on the activities of PTL.

But the witness said that he had not given preference to PTL at that time as the Monetary Board, where he was the Chairman, had prioritized other concerns (the Entrust issue). 

DSG Gunatilleke thereafter questioned the witness on the EPF transactions with regard to the month of November 2015.

The DSG said that the capital gains of PTL in the month of November were amounting to Rs. 2.606 billion.

DSG Gunatilleke: It was a very large amount for a new Primary Dealer, wasn’t it?

W: I can’t say exactly. I have to check other details as well.

DSG: From the secondary market transactions in November, PTL gained 89% of the profits when compared with other Primary Dealers and altogether 53% when compared with a stand alone Primary Dealer in respect of the profits. In this context, Rs. 2.6 billion is a significant amount in capital gains, right?

W: Yes

During the questioning, it was revealed that Mahendran had called for the daily reports relating to all transactions of EPF before him after he assumed duties as the CBSL Governor.

From January to October, 2015 the EPF had largely purchased bonds from the Primary Auctions but in November a considerable amount of bonds had been purchased in the secondary market.

DSG Gunatilleke questioned the witness about these activities of the EPF.

When the DSG questioned as to why EPF would not have bid at the auction and subsequently bought the same bonds on the settlement day of the auction in the secondary market, Mahendan said: 

“That is a matter for inquiry”.

DSG: Now you said that is a matter for inquiry right?

W: Yes

DSG: It was a matter known to you, right?

W: I wouldn’t have known it until the event had happened.

DSG: You are saying now that an investigation is warranted, right?

W: Yes

DSG: Why didn’t you investigate it then?

W: Data relating to this came in December, 2015.

DSG: Now you are saying the data came in December?

W: Yes

DSG Gunatilleke said that the witness was receiving reports of the EPF transactions on a daily basis and on November 4, 2015 he received a daily report relating to the November 2 transactions.

The witness said that he was not perfect with his gaze.

DSG: If you had acted earlier in November seeing the daily reports, things would have been different, right?

W: I do not agree.

During this questioning it was revealed that in the latter part of December Mr. Chrishantha Perera (Monetary Board Member) had forwarded an email to Governor Mahendran which contained a rumour circulating in the market at that time accusing EPF of helping PTL to gain phenomenal profits in November 2015.

Later, Mr. Mahendran had forwarded this to Mr. Jayalath (head of the EPF) to inquire into the matter.

However, Mr. Jayalath had thereafter prepared a report relating to the EPF and the November transactions and sent to the Governor.

According to the witness, he as the Governor had then called EPF officials and questioned themabout it in January, 2016. The witness said the officers gave reasons for their decisions in the month of November, 2015.

In the Jayalath report it was also highlighted the unavailability of a voice recording system in the dealing room of EPF.

However, when the DSG questioned as to whether he had referred the report to the Monetary Board, witness Mahendran said that there wasn’t sufficient evidence to prove such allegations at that time.

DSG Gunatilleke also said that in the daily reports provided by the EPF to Mr. Mahendran the dates of the secondary Market transactions were not reflected.

DSG: Didn’t you inquire as to why the dates of the transactions were not there in the daily reports?

W: That is a reasonable concern but not referred to at that time.

DSG: In October the dates were reflected in the daily reports, so why were the dates not there in the daily reports relating to the secondary market transactions in November?

W: I have no explanation.

When the witness was questioned about not installing a voice recording system at the EPF, he said that he had raised concern about it but it was a problem relating to facility management and it was not installed purely because of a bureaucratic error at the CBSL.

At this point DSG Gunatilleke played two voice recordings in which the PABC dealer and the EPF dealer at that time Mr. Saman Kumara were negotiating a deal. (The recording was obtained from the PABC data base).

In this conversation, according to the DSG the confirmation of the deal may have happened prior to or subsequent to that conversation.

LATE-CITY-DM-1-7Therefore the DSG was of the view that if the EPF had the facility of a voice recording system the collusive activities could have been monitored.

Mahendran said “That confirmation of the deal could have happened through a mobile phone or an e-mail or that confirmation could have been struck during a cup of coffee as well.”

DSG: Are you saying that such a deal could be struck while having a cup of coffee? Are saying that such a deal could be struck through a dealer’s mobile phone? Is it permissible doing that?

W: I never said that 

Referring to the on-sight examination reports of the PDD about PTL and the report prepared by Mr. Jayalath on the November transactions relating to PTL-EPF deals, DSG Gunatilleke suggested to the witness, “You have suppressed Board reports. If you had inquired about them properly, these matters would have ended up there. You have acted mala fide”. The witness rejected that.

DSG: In your time the PDD conducted activities in a way that benefited your son in law.

W: There is no evidence of that.

Then DSG Gunatilleke played another voice recording which reflected the conversation between the Superintendent of the PDD Sarathchandra and the Official at the People’s Bank’s Treasury Department. 
In this conversation (which took place on March 29, 2016 morning) the People’s Bank official seeks the SPD’s assurance that higher rates would not be accepted at the auction because there was a direction from Minister Ravi Karunanayake to the three state banks to bid at lower rates.

DSG: Did Sarathchandra tell you about this?

W: No 

DSG: Did anybody tell you about these two state banks’ meetings?

W: No

DSG: Did the Finance Minister tell you?

W: No

DSG: If your son-in-law, Aloysius tells the cut off rate at the auction (March 29, 2016) precisely that would be a price-sensitive information, right?

W: If correct yes.

DSG Gunatilleken then showed the actual cut off rate at the auction to the witness (14.7996). 

DSG: If Aloysius had some information about the cut-off rate as at 14.80 would that be regarded as price sensitive information?

W: Question is who would have told him.

DSG: That is the question Mr. Mahendran (everyone in the court room started laughing)

However, referring to the phone conversation of Aloysius and Kasun Palisena where Aloysius was instructing his CEO as to how to bid, the witness said that that is how dealers talk. He also said there could be good analysts who could predict the cut-off point so Aloysius could have got the information from anyone like that.

At this point Additional Solicitor General Dappula De Livera suddenly questioned the witness regarding several matters that came to light during the PCoI proceedings.

ASG Dappula De Livera: Now you are aware that there were two meetings chaired by then Finance Minister Ravi Karunanayake (on March 28 and 30, 2016 before the two auctions) with the state banks, right?

W: Yes

ASG De Livera: Now the evidence has been led that Mr. Paskaralingam was also there at the meetings, right?

W: Yes

ASG De Livera: There were Treasury officials present at those two meetings, right?

W: Yes

ASG De Livera: As per the evidence, there were CBSL officials also present at the meetings along with the chairmen of the state banks (People’s Bank, NSB and BoC) right?

W: Yes

ASG De Livera: Are you saying now that you did not know about those two meetings summoned by the then Finance Minister Ravi Karunanayake where the Minister had asked the state banks to bid at a lower rate at the auctions?

W: Absolutely 

ASG De Livera: Did Ravi Karunanayake inform you about summoning these state banks for meetings?

W: No. the Finance Minister was not obliged to inform the CBSL Governor in such an occasion. I categorically say that I did not know about the meetings.

ASG De Livera: There was evidence that P. Samarasiri (Deputy Governor) was present at the meeting held on March 28, 2016 at the Finance Ministry.

W: I have no knowledge about it.

However, at this moment Mahendran replied quite intensively to the questions put forward by the ASG and emphasized his ignorance about Deputy Governor P. Samarasiri‘s presence at the state banks’ meetings.

When the ASG remarked that the counsel appearing for the Deputy Governor had not contradicted this evidence, there was a heated argument between ASG De Livera and Mahendran’s counsel.

President’s Counsel Romesh De Silva and Counsel Chanaka De Silva who were appearing on behalf of Mahendran said that it was not fair to question his client continuously about a matter to which he had already replied stating his ignorance.

Counsel Harsha Fernando who appeared for P. Samarasiri said that there were only two witnesses (People’s Bank Chairman and the NSB Chairman) who testified about the presence of the Deputy Governor out of the eight witnesses who testified before the commission with regard to the state banks’ meetings.

He said his client had not participated in such a meeting and he will submit an affidavit proving it before the Commission.

However, ASG De Livera went on to question the witness repeatedly over the incident referring to the state banks meetings summoned by the then Finance Minister. The Witness too continued his stance that he did not know about those meetings.

At this point the Commission advised the ASG “We will decide on whether P. Samarasiri was there or not and whether the witness was telling the truth.”

The Commission seemed unconvinced over the repeated questing of the ASG.

ASG De Livera: You are lying perfectly. You nominated P. Samarasiri to attend those meetings

W: Why would I do that?

At this point President’s Counsel Romesh De Silva said “The witness had been questioned millions of times about the meetings and he said that he did not know. So this questioning is not fair”

ASG De Livera and Romesh De Silva PC engaged in an intensive argument at this point.

“Don’t jump like a jack in the box”, ASG De Livera said. 

When Romesh De Silva argued with him he said “I’m not going to be dictated by the Commission.” At this moment the counsel laughed at the comment of the ASG.

“I’m here to facilitate the Commission”, ASG De Livera said.

Justice Prasanna Jayawardena at this point in a disappointed manner said “At this moment you are not facilitating the Commission.”

However, at the end of this heated argument the Commission allowed ASG De Livera to continue with the questioning.

ASG De Livera: Do you personally know Ravi Karunanayake?

W: Yes

ASG De Livera: Do you know the family of Ravi Karunanayake?

W: My children know them.

ASG De Livera: So, he would have known Aloysius as well?

W: Yes

ASG De Livera: When did you come to know the fact that Aloysius had paid for Ravi Karunanayake’s Penthouse apartment?

W: Learned it from the Media

When the witness was questioned, he was of the view that he was unaware  of such renting of an apartment while he was serving as the Governor.

According to the ASG, then Finance Minister Ravi Karunanayake’s family had resided at this Penthouse apartment since March 2016.

ASG De Livera: The state banks meetings summoned by then Finance Minister where he had asked the state banks to bid low and the Finance Minister’s family starting to reside at the Penthouse apartment had happened during the same month. So, isn’t that ironical? And wouldn’t it reflect that Aloysius with the assistance of the then Finance Minister Ravi Karunanayake had fixed the March 29 and 31, 2016 auctions?

At this moment, President’s Counsel appearing for Aloysius questioned about the facts because those revelations came from the witnesses and are yet to be proven.

Justice Prasanna Jayawardena in a sarcastic manner said “It appears to be true from the evidence of ASG De Livera”

Justice Jayawardena seemed unhappy with the line of questioning of ASG De Livera and commented “This line of questioning appears to be for the press”

After ASG De Livera questioned the witness, Justice Prasanna Jayawardena questioned Mahendran on several matters.

Justice Jayawardena: Now you have summoned daily reports of EPF, right?

W: Yes

J: There is a track record that the EPF had purchased from the Primary Market Auctions, right?

W: Yes

J: And there was a huge departure in November from that trend, right?

W: Yes

J: Why didn’t you have a warning signal to your mind after seeing those daily reports about the purchases in the Secondary Market by the EPF in November?

The witness elaborated his stance saying that due to the transfer of Naveen Anuradha from the EPF, the EPF lacked competent personnel to engage in trading.

Justice Jayawardena: You had served the CBSL since 1983, right?

W: Yes

J: We have seen in the evidence that there was a culture of reverence with regard to the Governor of the CBSL, was it a correct statement?

W: I don’t agree

J: Is there a trend in the CBSL to comply with the word of the Governor?

W: I don’t think so

Then Justice Jayawardena questioned him about the connection between Mahendran and his son-in-law Aloyius.
Justice Jayawardena questioned him on the potential of conflict of interest. The witness said that he always kept at arm’s length with his son-in-law’s company (PTL) when he conducted his duties as the Governor of CBSL.

The witness pointed out an incident in Switzerland where such a conflict of interest was seen in the international arena. However, Justice Jayawardena quipped “it was in Switzerland and this is Sri Lanka”

Justice Chitrasiri at this moment questioned the Witness: Didn’t you think that Aloysius could have used you as a reference in his activities as a Primary Dealer?

W: If so he should be punished.

Justice Jayawardena: Now you said you considered about you and your son-in-law’s connection, right?

W: Yes

J: So, the Jayalath report regarding the secondary market transactions of PTL and EPF in November referred to matters relating to PTL (son in law’s company). So why didn’t you consider taking some decisions with regard to that?

The witness elaborated his answer and said that he discussed about that incident with others and wanted to conduct an impartial inquiry about the incident.

Justice Jayawardena: But the fact is no inquiry was held until late 2016. However, you said you wanted to keep at arm’s length with your son-in-law’s company, right?

W: Yes

J: So, was it prudent then to reside in the same house with him?

W: I thought about that question too. But my conclusion was, if I wanted to give details to Aloysius I would have stayed in Jaffna and passed him information. If I wanted to give him information why would I stay in the same house.

Justice Jayawardena also questioned about the appointment of Mr. Saman Kumara to the EPF.

It was revealed that Mr. Saman Kumara was first appointed to the equity section of the EPF and later moved as a dealer. It was he who was at the EPF in November, 2015, when PTL gained phenomenal profits from the secondary market transactions with EPF.

Justice Jayawardena questioned the witness saying that Saman Kumara has been accused of being a key player in the alleged events that occurred in the stock exchange scandal prior to 2015.

Justice Jayawardena: Why did you let him come into the EPF? Didn’t you care about Saman Kumara’s appointment?

Witness was of the view that he was lacking CA qualified persons in the staff at that time. He also said that he discussed this with one Mr Tilak Karunaratne in the SEC and found that there wasn’t sufficient evidence to accuse Saman Kumara on that allegation.

Justice Jayawardena in a sarcastic manner quipped at that comment: “Even the Roman Empire’s wife would have cared of such a thing”

The PCoI comprising Justice K.T. Chitrasiri (Chairman), Justice Prasanna Jayawardena and K. Velupillai Kandasami will resume sittings at 10 am today.