AFP/Colombo

Sri Lankan police yesterday arrested the former head of the stock market watchdog amid allegations of massive securities fraud during the rule of then-president Mahinda Rajapakse.
Nalaka Godahewa, former chairman of the Securities and Exchange Commission of Sri Lanka (SEC), was remanded in custody for a week pending investigations into misappropriation
of state funds, police said.
The case centres on the misappropriation of 5mn rupees ($38,000) given to a youth organisation run by the former president’s lawmaker son Namal Rajapakse in violation of financial regulations.
“We have arrested Mr Godahewa, who was taken before a magistrate who remanded him for a week,” said police spokesman Ruwan Gunasekera.
“We have two other men, including the then-director general of the SEC, already in
custody.”
Godahewa has also been accused of stalling investigations into corrupt transactions during his tenure at the SEC, which began in 2012 and ended after Rajapakse was ousted in
January.
Share prices rose by nearly 45% from mid-2012 to January 2015, reversing a downward trend in 2011.
Godahewa’s predecessor Tilak Karunaratne resigned in August 2012, saying he could not battle what he called a “mafia of crooks” who manipulated the stock market.
Sri Lankan shares more than doubled in value between 2009 and 2010, making the Colombo exchange the world’s best
performer.
Opposition legislator Mangala Samaraweera, who is now foreign minister, described it as the “premier centre for money-laundering east of the Suez Canal”.
The new government of President Maithripala Sirisena, who came to power in January on a pledge to tackle corruption, has launched a series of investigations into malpractice under Rajapakse.
Two heads of the SEC resigned in quick succession during Rajapakse’s rule, alleging political pressure to stifle investigations into insider trading and market manipulation.
Critics say the former president’s children became big investors in the stock market and their holdings were not compatible with their stated incomes.
The police on Saturday arrested former deputy director of the SEC, Dhammika Perera, and Ronnie Ibrahim, director of the Carlton Sports Club, also connected to the Rajapakse family, which conducted international rugby tournaments.
Local media have reported that the money, said to be allocated for an awareness programme on investing in stock market, was transferred to a third party bank account in the US as payment for a Hip Hop dance group that performed at the Carlton Super Sevens Rugby Tournament last year.
The FCID is also investigating several other transactions under the Rajapakse regime, police sources said.
Earlier this year, the Criminal Investigation Department of Sri Lanka police had summoned several officials attached to the SEC to record their statements.
The Colombo market has put in a lacklustre performance this year after the new government launched investigations into price-fixing and other fraud.