During the cross-examination, PTL CEO Kasun Palisena yesterday accepted that he placed bids and took other appropriate steps at the March 29, 2016 auction following instructions received from Arjun Aloysius, who was in possession of inside information according to the phone recording played before the Commission.
Continuing the Cross-examination of PTL CEO Kasun Palisena, Deputy Solicitor General Milinda Gunatilleke questioned the witness on the auctions that had taken place in October, 2015 and March, 2016.
DSG Gunatilleke explained during the proceedings there were ‘two secrets’ as to how PTL gained phenomenal profits in November 2015. He said PTL knew precisely how to bid at the October auction knowing the ‘cut off’ point and later sold those bonds accepted in the auction to EPF through an intermediary (PABC) within a very short period of time (in November 2015).
This ‘cutoff’ point is what CBSL decided on the bids received at a Treasury bond auction. It is simply a decision on the rate until which point the CBSL would accept bids (borrowings) from Primary Dealers at the auction.
The DSG also revealed that EPF had not even placed a bid at the October auction but had bought bonds at a higher price from PTL after a few days in November, resulting in PTL to gaining a considerably higher profit.
But witness Kasun Palisena rejected this view of the DSG.
DSG Gunatilleke: So, PTL precisely placed a higher volume of bids at the cutoff mark of the auction, which was finally accepted right?
Witness Palisena: Yes
DSG: And this has been happening previously as well in auctions?
W: Not always
DSG: But often enough
W: There are instances
DSG: These are gifts received by PTL and a life time opportunity to make profits, right?
W: Can’t comment on that … but yes it may be true
DSG Gunatilleke was of the view that having known until which yield rate the CBSL would accept bids, PTL had placed a higher chunk of bids at that ‘cutoff rate’.
Referring to the bid sheets of the auctions, the DSG showed that PTL’s bid was the last accepted bid at that auction by the CBSL.
DSG Gunatilleke said that PTL later sold those bonds obtained from the auction to EPF through PABC in the secondary market in the backdrop where the EPF had not even bid at that October auction.
Justice Prasanna Jayawardena at this point specifically asked the DSG about the time gap between the October auction and PTL’s sale of those bonds to the EPF. DSG Gunatilleke said it was about ‘four days’ after the auction that EPF had bought these bonds at a price higher than what had been offered in the auction.
Reminding the two occasions where PTL was in requirement of contingency funds, DSG Gunatilleke sarcastically commented that “PTL’s banker during a financial crisis was the EPF,” because there were a large number of instances where PTL had engaged in REPO transactions (instrument of borrowing) with the EPF when they were in need of contingency funds in treasury bond trading.
These two occasions were, immediately after the February 27, 2015 auction when PTL was required to settled the amount accepted in the auction, and on April 4, 2016 when PTL was in ILF (intra day lending facility) default.
It was also revealed that after February 27, 2015 auction PTL had not received lending facilities from other commercial banks and institutions due to the negative publicity it had received.
Justice Jayawardena: So, you usually go to the EPF when emergency money is needed, right?
Witness: Yes, if they have.
J: Have the EPF been ever running out of money?
DSG Gunatilleke: If the EPF had bid in those auctions they wouldn’t have had the opportunity to fund you at these particular times, right?
W: That I wouldn’t know.
At this point DSG Gunatilleke played the Singapore phone call, in which Aloysius instructs Palisena.
In this conversation, Mr. Aloysius was instructing Palisena on how to bid at the March 29, 2016 auction, its importance referring to the information he received from sources, the rates at which he should bid at the auction, the biding rates of the EPF and the cut off rate until which CBSL would accept the bids.
In this conversation, Aloysius referred his sources that he received information as ‘Our friend in the department’, ‘our friends in powerful places.’ Also Aloysius always says that “He said…” during this conversation.
Aloysius passes information to Palisena in the conversation regarding a state bankers meeting which was immediately finished at that time.
However, on an earlier occasion, cross-examining the chief dealer of PTL Nuwan Salgado, Counsel Chanaka de Silva, who was appearing on behalf of Arjuna Mahendran moved that this information given by Aloysius were ultimately wrong.
DSG Gunatilleke yesterday showed the accuracy of the information passed by Aloysius to his CEO Kasun Palisena in this conversation which happened around 9.18 a.m. and 9.34 a.m. on March 29, 2016 (at the time when the auction’s floor had been opened to bids)
Firstly, Aloysius instructs Palisena that the CBSL would accept any bid up to a rate between 14.80% to14.90%.
Secondly, he predicts there won’t be a ‘rate cut’ by the CBSL as the market expected in the coming months.
Then he instructs Palisena to bid several small volumes of bids at a rate of 13.50% at the auction.
Aloysius then instructs Palisena to place a large chunk of bids at 14.80% rate.
Establishing that all the aforesaid instructions were reliably followed by Palisena, DSG Gunatilleke confirmed that PTL had bid exactly on the instructions of Aloysius which was based on some information received from sources.
The DSG showing bid sheets of PTL confirmed that the 14.80% was the cut off rate until which CBSL had accepted bids in the March 29, 2016 auction.
Showing a press release of CBSL, DSG Gunatilleke said that on March 29, 2016, evening CBSL announced that there won’t be a rate cut as the market expected. The DSG observed that the Monetary Board meeting which took the decision on this rate cut had taken place in the Morning on March 29, 2016. (The morning in which Palisena received Aloysius’ call)
DSG Gunatilleke also proved submitting bidding sheets, that PTL had bid in small chunks of bids at a rate of 13.50% and later had bid a large amount of bids as one chunk at a rate of 14.80%, which ultimately resulted as the last bid that had been accepted by the CBSL in that auction. The DSG said that ‘Aloysius was pinpoint accurate on the cut off rate’ in that conversation.
A sample of how PTL had bid at the March 27, 2016 auction
1 billion bid at a 13.65%
1 billion bid at a 13.66%
1 billion bid at a 13.67%
1 billion bid at a13.68%
1 billion bid at a 13.68%
5 billion bid through (PABC) at a 14.68% which was the last bid accepted by the CBSL as ‘cutoff rate’ at the auction.
DSG Gunatilleke: You had received pinpoint accurate directions as how to bid from Aloysius, right?
Witness Palisena: Yes
DSG: Aloysius gave you instructions on yield rates and bidding amounts, right?
DSG: And thereafter you bid accordingly, right?
Palisena: Yes (after some hesitation)
DSG Gunatilleke and Justice Prasanna Jayawardena repeatedly questioned the witness thereafter on the same lines.
Afterwards Chairman of the Commission Justice K.T. Chitrasiri questioning the witness asked whether he accept that Aloysius had given him certain instructions and thereafter he continued the trade according to those instructions at the March 29, 2016 auction. Witness Palisena accepted that he acted according to the instructions received by him from Aloysius.
Justice Prasanna Jayawardena and DSG Gunatilleke thereafter questioned the witness on the words referred in the conversation by Aloysius as ‘our friend in the department’, ‘our friends in powerful places,’ ‘he said’ and ‘once in a life time opportunity’.
DSG Gunatilleke: Did it ever occur to you as to how Arjun Aloysius gives instructions like this information you received?
Witness: No, he was always instructing me in that manner.
DSG: Aloysius mentions ‘our friend in the department’, ‘our friends in powerful places’ and ‘he said’ in his conversation to you, right?
DSG: Do you know about them as Aloysius referred to them when giving the information?
At this point Justice Chitrasiri also questioned the witness as to why he never asked Aloysius from where he got this inside information. Witness Palisena said: “It was how Aloysius normally talks using such words”.
DSG: In your view, what could be those references?
W: That I don’t know
Adding amusement to the query DSG Gunatilleke asked the witness “Could it be somebody from Ceylon Transport Board?” Everyone laughed while the witness was silent.
DSG: Could it be coming from the Public Debt Department of CBSL?
W: I don’t know about it
DSG: You are saying that you don’t know who the people Aloysius was referring to are, isn’t it?
W: Yes. That is the general way how Aloysius speaks to me.
DSG: I am telling that you are lying to this Commission.
W: I disagree, why would I do so.
DSG: Exactly. Then tell the truth. Who were the people Aloysius was referring? Don’t carry the can (taking responsibility for a mistake done by someone else)
W: I don’t know about it. Aloysius would know it.
DSG: So, you are saying all those things are known to Aloysius only, right?
The witness’ answer was affirmative in an unconvincing manner.
At this point DSG Gunatilleke remarked the importance of Arjun Aloysius’ evidence before the Commission as there were facts that remain only within the knowledge of Aloysius.
The DSG and Justice Jayawardena repeatedly questioned the witness on Aloysius’ instructions in that conversation which was based on some inside information received by him. The witness however, was of the view that it was Aloysius’ way of talking.
DSG: Was Aloysius privy to certain information from the EPF and other government institutions? And were you not surprised when Aloysius told you that he got information about EPF’s bidding rates? Why was that?
Witness: That I don’t know. But that is how he speaks generally.
Then the DSG played a section of the recording which shows Aloysiu saying that he received EPF’s bidding rates.
DSG: So, this must be a common occurrence then, right?
Witness’ answer was unconvinced again and therefore Justice Jayawardena and DSG Gunatilleke continuously questioned the witness about it.
During that questioning it suddenly popped out from Kasun Palisena’s mouth: “This is just before an auction, and this is how Aloysius instructs me usually just before an auction.”
“Very good, that is what exactly we wanted to know”, DSG Gunatilleka said in a pleased manner.
Finally concluding the long run of questioning, Justice Jayawardena asked Palisena briskly.
Justice Jayawardena: Now tell me, Aloysius is not a liar or a fool right?
J: So whatever he passed to you as information should therefore be accurate, right?
J: Did Aloysius normally get involved in this sort of big investment processes?
J: Was he in a habit of instructing you as he did in that phone conversation on March 29, 2016
J: Now it is clear that these types of transactions had happened earlier as well and that is not an unusual occurrence, right?
J: When Aloysius was instructing, you, were you writing it down, right?
J: And according to that phone conversation, Aloysius was also referring to some paper on which he had written down notes, isn’t that so?
J: So, wasn’t that clear that he had also received information from somewhere else?
W: Most probably yes.
J: He says ‘friends in powerful places’ in the conversation. What are these powerful places?
W: That I don’t know
When Justice Jayawardena questioned whether these places could be the Public Debt Department (PDD) and the Tender Board (TB), the witness’ answer was negative and said he would not know about it.
It was explained from the questioning of Justice Jayawardena that the PDD of CBSL recommends the cutoff rate of an auction to the Tender Board and after the approval of the TB it goes for the approval of the Governor.
Justice Jayawardena also questioned the witness about the nature of the relationships between Aloysius and the EPF dealer and the NSB dealer.
Justice Jaywardena: According to previous evidence, it was revealed that Aloysius and EPF’s dealer, Saman Kumara were good friends. Was it correct?
W: Yes. They should be friends.
J: Then what about NSB dealer Naveen Anuradha? Was he a friend of Aloysius too?
W: Yes they must be knowing each other
When Justice Jayawardane questioned the witness about whom in the PDD that PTL had dealt in their daily trading, the witness disclosed several lower ranking names in the PDD.
The Justice repeatedly questioned him whether there were high ranking individuals in the PDD that PTL had dealt with. But the witness’ answer was in the negative.
Then the Justice also questioned whether PTL had dealt with any individual in the Tender Board. Witness’ Palisena’s answer was again negative.
PTL CEO Kasun Palisena’s cross-examination will continue today regarding the deletion of phone conversations from PTL’s voice recording system.
The PCoI comprising Justice K.T. Chitrasiri (Chairman), Justice Prasanna Jayawardena and Mr. Kandasami Velupillai will resume sittings at 10 am today. (Shehan Chamika Silva)