Company results ‘leaked’ in WhatsApp group chats
CRUCIAL INFO LEAK At least 12 cases of prescient messages about company shares and market values have been posted on private groups, throwing up charges of insider trading
NEW DELHI: Three days before Dr Reddy’s Laboratories Ltd announced quarterly results this summer, a message circulated on a private Whats A pp group saying the Indian drug maker would not post good numbers.
Dr R eddy’ s was going to report a loss, according to the message on the “Market Chatter” group posted on July 24 from a mobile phone number that was traced back to Nishant Vass, an auto analyst at I CI CI Securities, a leading Indian brokerage. The group had 45 members, mostly traders.
The loss would have been a surprise to many analysts, as consensus forecasts compiled by Thomson Reuters at the time showed expectation sofa profit of ₹300 crore. The message proved prescient: On July 27, Dr. R eddy’ s reported a loss of ₹58.7 crore — sending shares down by 4.4%.
A person who identified himself as Vass returned a call using the number from which the Dr Reddy’s numbers had been posted on the group. He denied writing or sharing posts, adding later in a separate WhatsApp message from the same number that it was “totally baseless” that he had done so.
Reuters has documented at least 12 cases of prescient messages about major Indian companies, including Dr Reddy’s, being posted in private groups.
Two of the messages appeared in the transcripts of six groups reviewed by Reuters, including the “Market Chatter” group. The others were shared on condition of anonymity by two other members of other WhatsApp groups.
The posts with prescient numbers in the groups were circulated hours or days before official company statements. The messages shared could involve lucky guesses or astute forecasts based on publicly available information, and not all metrics shared among the 12 cases were exactly the same as reported.
Reuters could not determine where the numbers posted on the WhatsApp groups originated or whether any of the market participants who received the messages had traded on the basis of the numbers they had seen.
BREAKING THE LAW
According to two lawyers who were formerly senior officials at Securities and Exchange Board of India (SEBI), if any numbers being posted on groups were determined by regulators to be “unpublished price-sensitive information ”, the people circulating them would be breaking the law .“Theme re sharing of information that could be unpublished insider information is outlawed, even if you don’ t misuse the information tot radeon it ,” said Sandeep Parekh,a lawyer with Finsec Law Advisors who used to head SEBI’s enforcement division. SEBI did not respond to requests for comment.
India toughened insider trading rules in early 2015, expanding what constitutes “unpublished price-sensitive information” to include“any information” that is not “generally available” and that could have a market impact.
The law also expanded the scope of who constitutes an “insider” to include “anyone in possession of or having access to unpublished price-sensitive information” regardless of how they came “in possession of or had access to such information”.
“You don’ t need to have gotten inside information from a company. You could get it from anywhere ,” said Va ne es a Ag raw al, a partner with Suvan Law Advisors who formerly worked in SEBI’s legal department. “As soon as you have information that could be insider information you are an insider, and you are not supposed to either pass it on or trade on it.”
Circulating “unpublished price-sensitive information” can result in penalties of up to ₹25 crore and jail of up to 10 years.
ICICI Securities said it had “zero tolerance towards any dissemination of unpublished price sensitive information and an appropriate framework to safeguard confidentiality of information .” Dr. R eddy’ s said it was“not aware of any information related to its financial results being circulated external ly ahead of statutory disclosures that are made officially by the company”.
WHATS APP MESSAGING
The messages about the 12 companies with prescient informa- tion involved what were character is ed as being quarterly results, including metrics like net profits, revenues and operating margins. They also included messages about upcoming bonus share issues or revenue guidance.
Seven of the companies are part of the benchmark NSE index: Dr. Reddy’s, drug maker Cipla Ltd, Axis Bank, HDFC Bank, Tata Steel, Wipro, and Bajaj Finance. The other five were Mahindra Holidays and Resorts, C romp ton Gr eaves Consumer Electric a ls Ltd, the IT services providers Mind tree Ltd and Mastek Ltd, and India Glycols, a petrochemicals company.
Wipro, Bajaj Finance, HDFC Bank, Mastek, Crompton Greaves, Cipla and Mahindra Holidays said they were not aware messages referring to their upcoming results had circulated in WhatsApp, and that the companies adhered to strict standards of guarding sensitive company information. Axis Bank, Tata Steel, India Glycols, Mindtree did not respond to comments.
Whats A pp, which is owned by Facebook, responded to a request for comment by pointing to its terms of service, which state users can use the platform only for“legal, authorised, and acceptable purposes ”.
HEARD ON THE STREET
Many of the postings are referred to as “HOS”, for “Heard on the Street ”. On July 25, Fanil Motiwall a, a contractor for brokerage Arcadia Share & Stock Brokers, posted a set of numbers for Axis Bank .“This HOS is going around for Axis,” he said when posting the numbers, which included key metrics such as gross non-performing assets and net interest margins. Later that day, Axis Bank reported results that closely matched the final numbers in Motiwalla’s message.
Mo ti wallas aid he just re posted a message that had already been circulating and he did not consider it inside information.