JUST BEFORE the stock exchange came crashing down in 2000, brokers were in cahoots with bank officials to prop up the share prices of the Bank of Cyprus and Hellenic Bank, an investigation by the Securities and Exchange Commission  (SEC) has revealed.

Excerpts from the SEC report, published yesterday by Politis, feature the transcripts of phone conversations between stockbrokers discussing ways of keeping Hellenic’s bank share artificially high.

The report, moreover, contains the testimony of the director of a well-known brokerage firm, who quite explicitly mentions that, on the eve of a rights issue – selling new shares to existing shareholders at a discounted price in order to raise capital – insiders at Hellenic reached an understanding with brokers to keep the share price above £2 (€3.40).

In an off-the-cuff remark, the director, testifying to an SEC committee of inquiry, notes that without this manipulation of the market it would have been “impossible” to keep Hellenic’s share above this target value.

More sensationally, in the transcripts the same person suggests to the then chairman of the SEC – who is interviewing him – that the latter was in on the act. The comment is seen as a thinly-disguised warning to the SEC chairman to back off.

In the same interview, the director says similar wheeling-and-dealing went on with Bank of Cyprus shares at the time the bank was planning to expand into the Greek market. Had the stock market been allowed to take its course, the director says, BoC shares would have dropped, jeopardising the move to Greece.

Cypriots harbour a sense of injustice for the scandal 10 years ago that brought the island’s stockmarket into disrepute and triggered a painful restructuring to regain investors’ confidence.

The market gained 688 per cent in 1999 as its capitalisation bulged to £11 billion at one point.

All of those gains were wiped out a year later by a rash of new issues that drew a stampede of uninitiated investors on borrowed funds and led to a subsequent liquidity squeeze.

Triggered by investors’ complaints that they lost money on the shares of a listed company by the name of Aqua Sol, the SEC’s investigation – which was launched in 2006 – quickly grew to encompass allegations of insider trading at the Bank of Cyprus and Hellenic.

According to Politis, the report was submitted to the Attorney-general, only to be filed away. But the investors association PASECHA has pledged to fight on, and is lobbying for the report to be discussed by parliament.

Commenting on the Politis story yesterday, AKEL deputy Yiannos Lamaris said it merely confirmed a gut-feeling most Cypriots had in 2000, namely, that the share prices had been manipulated.