Introduction
The practice of insider trading has sparked widespread discourse within the financial sector for numerous years. In response to this issue, the Securities and Exchange Board of India (SEBI), has implemented stringent regulations and imposed severe penalties for individuals found guilty of engaging in insider trading. This article delves into the five most significant insider trading penalties in India, examining the measures taken by SEBI and other regulatory bodies to prevent such fraudulent activities.
While these cases have garnered significant attention, the focus of this post is to analyze the regulatory responses and penalties rather than the specifics of the cases themselves.
Five Key Insider Trading Penalties in India
Possession of UPSI & Insider Trading: Indiabulls
SEBI imposed a fine of ₹ 1.05 crore on Indiabulls Venture, its former non-executive director, her husband, and the firm’s company secretary for violating insider trading norms. The former non-executive director, Pia Johnson, and her husband, Mehul Johnson, traded in the company’s scrip while in possession of unpublished price-sensitive information (UPSI) during a time when the trading window should have been closed. Pia and Mehul collectively gained ₹ 69.09 lakh. SEBI has also imposed a fine of ₹ 5 lakh on its company secretary Lalit Sharma. The regulator has advised the firm to adopt due diligent measures and checks and balances to avoid any regulatory lapse.
Insider Trading (Senior Management): Future Retail Limited
SEBI banned Kishore Biyani, founder of Future Group, his brother Anil Biyani and Future Corporate Resources Ltd (FCRL) from accessing the securities market for one year due to alleged insider trading activity in the shares of Future Retail Ltd (FRL) in 2017. The Biyani brothers and FCRL have also been barred from buying, selling or dealing in the shares of FRL directly or indirectly for two years, and must pay a penalty of ₹ 1 crore ($135,500) each. Sebi has also directed the three to “disgorge” ₹ 17.78 crore ($2.4m) along with 12% interest.
UPSI Disclosure & Insider Trading: Aptech Limited
SEBI imposed a fine of ₹ 1 crore ($133,786) on Aptech Ltd for violating insider trading norms in 2016. An investigation by the regulator found that Aptech had made an announcement on September 7, 2016, which included unpublished price-sensitive information about the company’s foray into the preschool segment. The regulator observed that a non-disclosure agreement was entered into by Aptech on March 14, 2016. It was noted that the UPSI on Aptech’s entry in the preschool segment’ came into existence on that date itself. The regulator found that designated persons and their immediate relatives made wrongful gains of around ₹ 12.68 crore ($1.7 million) by trading in the company’s shares during the period when the trading window should have been closed.
UPSI Leakage: Antique Stock Broking
The market regulator fined two employees of Antique Stock Broking, Shruti Vishal Vora and Parthiv Dalal, for leaking unpublished price-sensitive information (UPSI) related to the financial results of Wipro, Asian Paints, and Mindtree through WhatsApp messages before official announcements. Sebi has imposed a fine of Rs 45 lakh on Vora for her involvement in three cases, while a penalty of Rs 15 lakh has been imposed on Dalal for Wipro. The regulator investigated the circulation of UPSI through WhatsApp messages to ascertain any possible violation of the PIT Regulations between December 2016 and May 2017. SEBI found that the financial figures of Mindtree, Asian Paints and Wipro circulated through WhatsApp closely matched with those disclosed subsequently by these companies on exchanges.
UPSI and Financial Results: Spice Jet
SEBI imposed a total penalty of Rs. 35 lakh on two individuals for trading in SpiceJet shares based on unpublished price-sensitive information related to financial results. An investigation was conducted to ascertain if the insiders had violated the provisions of the Prohibition of Insider Trading (PIT) norms in January-February 2016. The investigation revealed that Shreejesh Harindranath, the general manager of financial planning, analysis and treasury at SpiceJet, had purchased 3,100 shares and communicated the information to his brother, who bought 800 shares. The two brothers violated the provisions of the PII regulations by trading in SpiceJet’s stock while in possession of unpublished price-sensitive information.
Insider trading fines and penalties cause significant harm to those they are imposed on as well as the company in question. The penalties are levied with good reason and to prevent harm to the economy as a whole. These instances serve as a reminder of the importance of maintaining a consistent insider trading compliance in India. As capital markets are essential to a thriving economy, companies must invest in the right tools to manage them. While these are just a few of many examples, regulatory oversight to control insider trading will continue to increase (read our blog about ‘why’ here) – the recent stress on the Structured Digital Database continues the focus down the same road.
