Archive for May, 2017


The Securities Appellate Tribunal (SAT) today admitted Reliance Industries’ (RIL) appeal against a ban on trading in the equity derivatives market for a year imposed by the Securities and Exchange Board of India.

In March, SEBI had ordered RIL to give up the Rs. 447.27 crore of illegal gains it made through the network on trades in 2007 and pay an additional penal interest of 12 per cent per annum from November 29, 2007. RIL and the 12 front entities are also banned from accessing the equity derivatives market for a year.

Counsel for Reliance Industries Harish Salve appealed against the SEBI order at SAT. The next hearing in the case has been posted for early August.

Meanwhile, Salve asked SAT to allow RIL to continue to invest the company’s surplus cash in mutual funds. Some of these funds, he argued, may trade in equity derivatives and this should not be construed as going against the SEBI order.

In its response, counsel for SEBI asked RIL to submit an application to the regulator in this regard with the names of the fund houses that RIL invests in.

Salve added that the company does not have any current F&O positions in equity.

In March, SEBI, under its new chief Ajay Tyagi, had found Reliance Industries guilty of unfair trade practices and “perpetrating fraud in the securities market”, which resulted in “illegal gains” for the company.

The case dates back to March 2007 when the Mukesh Ambani-led Reliance Industries decided to sell five per cent stake in a subsidiary listed company Reliance Petroleum.

However, instead of directly selling shares in the cash market and risking a fall in the price, RIL chose to bet against its subsidiary’s shares in the derivatives market through 12 front entities, according to SEBI’s investigations.

These front entities executed trades in the cash market below the last traded price of the stock, hence triggering a fall in the share price of Reliance Petroleum. This fall in share price allowed them to profit from their own short positions in the derivatives segment to the tune of Rs. 447.27 crore, SEBI found.

According to SEBI’s findings, RIL made illegal gains of Rs. 60.28 a share on 7.42 crore shares.

Reliance Petroleum had merged with RIL in 2009.

Advertisements

An insider is one who because of his status has access to price sensitive information which is not in public domain. James Surowiecki quoted, “If companies tell us more, Insider Trading will be worthless“. Quite precisely, as per Regulation 2 (ha) of the SEBI (Prohibition of Insider Trading) Regulations, 2015 (“PIT Regulations”) Unpublished Price Sensitive Information (“UPSI”) is not generally known to the public. But if known, may likely affect the price of the securities in the capital market.

The issue occurred in February 2007 when alerts were generated at the share market regarding dealing in shares of Indian Petrochemical Corporation Limited (“IPCL”) wherein it was observed that some entities purchased large quantities of IPCL shares before it announced its intention to declare interim dividend and considered to amalgamate with Reliance Industries Limited (“RIL”). In March 2016, SEBI by disposing of the charges of Insider Trading against Reliance Petroinvestments Ltd. (“RPIL”) added further lucidity to the understanding of who an insider may be.

Major Findings

  • RPIL was not an insider as there was no evidence to establish the access of UPSI.
  • RPIL is not a person “deemed to be connected”.
  • RIL did not exercise any voting power in RPIL directly.

Factual Matrix:

  • RPIL, which also held 46% stake in IPCL, took a commercial decision authorizing its Directors to invest INR 30 crores in the equity of IPCL. Further, it made additional investments of up to INR 100 Crore in the equity of IPCL.
  • On March 2, 2007, IPCL made an announcement to the stock exchanges for a declaration of Interim Dividend. It is pertinent to note that the order to purchase 98,280 shares of IPCL were placed before an announcement for a declaration of Interim Dividend was made.
  • On March 4, 2007, the proposal for merger of RIL and IPCL was discussed and on the next day, the steps for initiating the proposed merger were taken.
  • On March 10, 2007, a joint meeting of the boards of RIL and IPCL took place where a joint report was submitted setting out the recommended swap ratio was deliberated on. Subsequently, the Boards of RIL and IPCL approved the merger at their respective Board Meetings.
  • In view thereof, SEBI ordered an investigation in June 2007 regarding buying, dealing or selling in shares of IPCL in order to determine if any provisions of the SEBI Act or Rules and Regulations thereunder were violated.

RPIL’s Plea

  • RPIL submitted that the acquisition of shares in IPCL was a part of creeping acquisition of IPCL which was already underway. For better understanding of the subject matter, creeping acquisition is when any person holds 15% or more but less than 55% of shares or voting rights of a target company (IPCL in the present case), such person can acquire additional shares as would entitle him to exercise more than 5% of the voting rights in any financial year ending March 31 after making a public announcement to acquire at least additional 20% shares of target company from the shareholders.
  • RPIL further added that their investment of INR 30 Crore was a commercial decision as they had made a decision to commence creeping acquisition of IPCL shares. As the investment limit agreed to, was almost exhausted in June 2006. Thereafter, the share prices of IPCL had started to increase and eventually touched INR 325 per share, as a result of which shares were not purchased further.
  • Moreover, RPIL stated that the relevant trade did not take place abruptly, the shares in question were purchased on the basis of the share price of IPCL and in line with the commercial decision of RPIL.
  • RPIL pleaded that the past trading pattern of RPIL in the shares of IPCL should have been taken into consideration by the SEBI to ascertain whether the relevant trades were conducted on the basis of UPSI, as there was no proof incumbent upon it in order to sustain a charge of insider trading.

SEBI’s Observation

The two announcements made by IPCL were not Price Sensitive Information

According to the investigation report (“IR”), RPIL had made two announcements:

  • The order to purchase 98,280 shares of IPCL.
  • An announcement to the stock exchanges for a declaration of Interim Dividend.

The share price of IPCL more or less moved in sync with the movement in Sensex. Wherein, the scrips witnessed a substantial price rise subsequent to the announcement of amalgamation of IPCL with RIL.

RPIL is not an insider as defined in Regulation 2(e) of PIT Regulations

Regulation 2(e) of PIT Regulations stipulate that an insider is one who is or was connected with the company or is deemed to have been connected with the company and is reasonably expected to have access to UPSI in respect of securities of a company, or has had access to such UPSI.

RPIL is not a person ‘deemed to be connected’ within the meaning of Regulation 2(h) of the PIT Regulations

The Adjudicating Officer noted that it is imperative to establish that the same individual or body corporate holds more than a third of the voting rights with respect to both the Companies being examined for the purposes of this clause.

It was found that RIL did not exercise any voting power in RPIL directly, as is evident from the shareholding pattern of RPIL during the financial year 2006-07 and RIL as a single entity did not directly hold the requisite one-third shares in RPIL, as the shareholding of RPIL was cross-held by a number of subsidiaries. Moreover, one-third of the voting right in RPIL were exercised by Reliance Ventures Ltd. and not by RIL.

On the basis of the foregoing findings, the Adjudicating Officer disposed of the Adjudication Proceedings initiated against RPIL.

Key Takeaway

Trading by an insider in the shares of a Company is not in itself violation of law. In fact, trading by the Insiders (directors, employees, officers etc.) is a positive sign which should be encouraged by the Companies as it aligns its interest with those of the insiders. The law on the other hand prohibits trading by an insider in breach of fiduciary and duty of care and confidence towards the stock of a Company on the basis of non-public information to the exclusion of others. Therefore, in our view SEBI action of disposing of the insider trading charges against RPIL holds good. The reason being, PIT Regulations were put in place as a fresh tryout for those having perpetual control over UPSI. As suggested in the Sodhi Committee Report, it placed paramount thrust upon review of empirical evidence and feedback after the concept of trading plan was introduced. In view thereof, the present case at hand goes on to affirm the judicial intent of the PIT Regulation in spirit.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

Source:

http://www.mondaq.com/india/x/583590/Shareholders/SEBI+Disposes+Off+Insider+Trading+Charges+Against+Reliance+Petroinvestments+Ltd

A former Expedia computer support technician was sentenced to 15 months in prison on Tuesday after admitting he stole confidential information from senior executives’ emails to profit from insider trading.

Jonathan Ly, 28, was sentenced by U.S. District Judge John Coughenour in Seattle after pleading guilty in December to a securities fraud charge for having engaged in an insider trading scheme that prosecutors said netted him $331,000.

As part of a plea deal, Ly had also agreed to repay Expedia the $81,592 it spent investigating the computer intrusion. He previously reached a $375,907 settlement with the U.S. Securities and Exchange Commission.

Prosecutors had sought a two-year prison sentence for Ly, a resident of San Francisco, according to court papers. A lawyer for Ly, John Runfola, said he was grateful for the 15-month term the judge imposed.

According to court papers, in 2013, Ly began exploiting his administrative access privileges to secretly review the contents of devices belonging to executives including Expedia’s chief financial officer and head of investor relations.

Prosecutors said that using the non-public information he obtained, Ly executed a series of well-timed trades in Expedia stock options.

Source:

http://fortune.com/2017/04/25/expedia-employee-prison-sentence-insider-trading/

 

NEW YORK: A 41-year-old Indian citizen has been arrested on charges of insider tradingand making thousands of dollars using confidential information of a private equity firm’s acquisition of a technology company.

Avaneesh Krishnamoorthy, who lives in New Jersey, served as a vice president and risk management specialist for a Manhattan-based investment bank from 2015 till this month.

He is charged with one count of securities fraud, which carries a maximum sentence of 20 years in prison and a maximum fine of $5 million.

Acting Manhattan US Attorney Joon Kim said Krishnamoorthy made approximately $48,000 in illicit profits through the insider trading scheme.

The Securities and Exchange Commission filed a parallel civil complaint alleging that the accused learned that Golden Gate Capital planned to acquire publicly traded advertising technology company Neustar Inc.

He then began trading in Neustar securities. The trading took place in two brokerage accounts that Krishnamoorthy allegedly kept hidden from his employer, which had been approached by Golden Gate Capital to finance the transaction.

Krishnamoorthy was presented in Manhattan federal court before United States Magistrate judge Kevin Nathaniel Fox on Tuesday.

Kim said Krishnamoorthy has been charged with violating his duty to his company and trading on insider information.

“He allegedly exploited his access to information about a pending acquisition to purchase stock and options, making tens of thousands of dollars in illegal profit for himself,” the attorney said.

The insider trading case is among the first brought by Kim, who succeeded Preet Bharara, Manhattan’s top federal prosecutor after he was fired by the Trump administration.

Bharara had successfully prosecuted several high profile insider trading cases, including those against India-born Rajat Gupta and his one time friend and business associate Raj Rajaratnam.

According to the complaint filed in Manhattan federal court, as vice president and risk management specialist, Krishnamoorthy had access to material non-public information concerning mergers and acquisitions for which the investment bank he worked in might potentially provide financing

Source:

http://timesofindia.indiatimes.com/nri/us-canada-news/indian-citizen-held-in-us-charged-with-insider-trading-worth-48000/articleshow/58375907.cms

 

%d bloggers like this: