Photographs with former US president Bill Clinton are put up all over Anand Rathi's office near Dalal Street, the fading symbol of India's stock markets. One photo stands out. Placed just behind his chair, it has Clinton, SEBI Chairman D.R. Mehta and Rathi, laughing heartily.

But March 2000 were good days. A year later, on March 12, 2001, Rathi was removed from the Bombay Stock Exchange (BSE) board by SEBI and his broking firms were barred from trading because he had called up an official of the BSE's surveillance department and sought details of broker's positions in certain stocks. The bad days had begun.

Rathi was not alone. The market watchdog, desperate to show it did not wear dentures, had cracked down on brokers. In a span of less than a month, Rathi, Nirmal Bang, Credit Suisse First Boston (CSFB), Shankar Sharma's First Global group and big bull Ketan Parekh, who together contributed a mind-numbing Rs 3,10,000 crore-or more than 10 per cent-to the Indian stock market's annual turnover of Rs 28,00,000 crore, were put out of the market. Trading volumes crashed. It also showed the shallowness of the Indian stock markets, with a handful of players controlling a large volume of trading.

Business THE LONG WAIT ACCUSED CHARGES & PUNISHMENT STATUS Anand Rathi Group Barred from trading on March 12, 2001 for seeking confidential information from a BSE official. Turnover: Rs 30,000 crore. No proof of insider trading. Has served the nine-month ban Ketan Parekh Group Barred from trading indefinitely on April 4, 2001 for allegedly rigging prices and circular trading. Turnover: Rs 1,30,000 crore. Investigations still in progress. Remains banned from trading. CSFB Banned from trading on April 18, 2001 for brokering circular transactions among Parekh firms. Turnover: Rs 30,000 crore. Inquiry officer to give final recommendation. Probe in progress. First Global Group Banned on April 18, 2001 for short sales and structured deals. Revocation of licence suggested. Turnover: Rs 30,000 crore. SEBI to decide on final order. Nirmal Bang Banned on April 18, 2001 for short sales and structured transactions. Turnover: Rs 90,000 crore. Died in a car crash in September 2001. Probe continues. The combined annual turnover of these five brokers was Rs 3,10,000 crore, or 33 per cent of the Rs 10,30,000-crore annual turnover of the Bombay Stock Exchange.

Eight months later, SEBI declared there was no evidence that Rathi used the information acquired from the surveillance official for insider trading. However, just making that call to the official was reason enough for a nine-month ban on his broking entities. This has raised many questions. Rathi never denied seeking information from the surveillance official. In fact, he said this was done whenever he was asked to explain the situation in the market by Finance Ministry or SEBI officials. So SEBI need not have investigated the issue at all but punished Rathi straight away. On whether Rathi misused this information, SEBI found nothing. In the interim, the Rathi Group, which accounted for Rs 30,000 crore of annual turnover with more than 15,000 investors as its clients, was barred from trading.

Yet, Rathi is lucky to be back in business. Others are still waiting for final orders from SEBI. And with every passing day, the initial applause the regulator received for taking "tough action" is dying down. Did the regulator go overboard in banning entities from trading without completing its investigations? Is it taking too long? Will investors get anything at the end of the probe?

First, a flashback to March 2001. Two days after Finance Minister Yashwant Sinha presented his dream budget, the market crashed. An upset Sinha ordered a probe. By the evening, SEBI had gathered details of the broking firms that traded heavily on March 2. Names of First Global, Bang and CSFB were splashed in the next morning's newspapers and it was believed that a bear cartel was responsible for pulling down the market. But as investigations progressed, it became clear that the crash was not just a day's work-and had little to do with a bear cartel. So what started as a bear cartel probe turned into a Parekh scam.

After nine months, SEBI dug up a large number of transactions between entities linked to each other, many of them run by Parekh. Parekh's firms together traded more than Rs 1,00,000 crore per year. Parekh has been charged with rigging share prices. CSFB has been charged with brokering these circular transactions aimed at manipulating share prices and volumes. First Global and Bang, on the other hand, have been accused of short sales and structured deals in violation of SEBI rules. There is no evidence to suggest that they, along with Rathi, connived with Parekh.

"The process has been longer than anyone imagined. We haven't scaled down our operations despite the ban but a company can't go on with no revenue indefinitely," says Tom Grimmer, CSFB's spokesperson in Hong Kong. CSFB, which had an annual turnover of Rs 30,000 crore, is yet to receive the final show-cause notice. Clearly, it will have to wait. Says former SEBI chairman G.V. Ramakrishna: "The inquiry can take a year provided there is something concrete at the end of it. But if there is no end in sight, then it is a matter of concern. In this case, the SEBI inquiry started only because of external pressures."

SEBI's action was perhaps as deleterious for the market as its inaction. Rather than complete its investigations first, establish the guilt and then ordering the punishment, SEBI worked in the reverse direction. It first banned the broking firms-a punishment considered severe in most developed countries-on the basis of a preliminary report, which was completed in less than six weeks and submitted to the Government on April 15, 2001. The inquiry proceedings in the case of CSFB, Bang and First Global were launched in early June last year.

Compare this with how regulators dealt with primary market offences by CSFB in the US. The investigations took 18 months. Last year, regulators slapped a fine of $100 million (Rs 485 crore) on CSFB, which it has agreed to pay. The money will go into an investor protection fund. During the investigations, CSFB was allowed to continue its business. Only when the offence was established, was it punished. In India, Bang, who died in a car accident in September 2001, has not even been served a final show-cause notice.

Indeed, the probe is moving at a snail's pace. Rathi had approached the Bombay High Court and Sharma moved the Securities Appellate Tribunal (SAT) when they were barred from trading. In both cases, the courts refused to intervene in the matter pending a final decision from SEBI. But in both the cases the courts asked SEBI to expedite the probe. Last week Parekh too moved the SAT. SEBI has been directed to complete his inquiry within 10 weeks.

SEBI has sought powers for plea-bargaining-a process through which an inquiry is cut short by a mutual agreement between a legal authority and the accused and a penalty ordered-which is practised in most developed markets. "We have asked for such a system to be put in place here," says a SEBI official.

The key question is whether investors will get anything at the end of it all. Unlike in developed markets, no hefty fines will be imposed by SEBI. The regulator says it has no powers to do so. What this means is prolonged litigation and practically nothing for the investors.