Colombo, December 7

Sri Lankan police today 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 five million Sri Lankan 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 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 per cent 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 stock market.

Sri Lankan shares more than doubled in value between 2009 and 2010, making Colombo exchange world’s best performer.