Ten entities receive Sebi notice for Whats App leaks
MUMBAI: The Securities and Exchange Board of India (Sebi) has sent show- cause notices to at least 10 entities and individuals in the case of unpublished financial results finding their way to private WhatsApp groups, two people with direct knowledge of the matter said.
The markets regulator, which completed its probe into the high-profile case earlier this year, has found the entities and individuals to whom the notices were sent last month guilty of releasing unpublished pricesensitive information on WhatsApp groups that have analysts and journalists as members, the people cited above said on condition of anonymity.
“These are mostly middlemen, who posted the so-called privileged information on WhatsApp groups ahead of the financial results being made public,” one of the two people said. “Sebi has found these leakages in as many as 20 scrips of Nifty 50 companies. The information communicated on the social media platform was very similar to the actual results published a day or two later.”
According to Sebi’s prohibition of insider trading norms, communication of unpublished price-sensitive information is an offence and individuals can be charged with insider trading if found trading on such information.
Sebi initiated the case in December 2017 after observing that earnings information of blue-chip companies had made their way to WhatsApp groups such as “market chatter” ahead of being made public.
The scrips include those of HDFC Bank Ltd, Axis Bank Ltd, Tata Motors Ltd and Bata India Ltd (not a Nifty 50 company). In the last week of December 2017, Sebi asked these four companies to conduct an internal probe to find the source of the leak. Mint reported on May 3 that the companies in their reports submitted to the regulator had ruled out leaks from their officials.
On December 22, 2017, the markets regulator conducted raids on more than 30 traders and middlemen to ascertain their role in communicating price-sensitive information.
“Out of the 30 traders raided, Sebi has found strong evidence against 10 of the individuals/ entities,” said the second of the two people cited earlier. “Sebi has sent out show-cause notices to them for violating provisions of insider trading, prevention of fraud and unfair trade practices rules and listing rules. “Some of the individuals, who have received Sebi notices, are considering a settlement through the consent mechanism.” This allows individuals to settle market infractions against a penalty without admission or denial of guilt.
The markets regulator, which has largely relied on communication of the sensitive information to make its case and lay charges, had for the past two years been unable to identify the source of the information leak.
“There was a problem in going back to the person from whom those messages came. So, we went through a bit of a bottleneck in finding out where these messages really came from,” Sebi chairman Ajay Tyagi said on June 27 after a meeting of the Sebi board.
The internal probe of the four companies compounded the problem for the regulator as they could not pinpoint the source of the leaks. Bata India even went a step ahead and declared it did not find statutory auditors to be the source of the leak.
However, the companies in their reports committed to increasing scrutiny of third parties such as statutory auditors, which are typically provided with financial results before they are made public, and had further tightened norms regarding price-sensitive information.
THE TEN ENTITIES GUILTY OF RELEASING UNPUBLISHED PRICE SENSITIVE INFORMATION ON WHATSAPP GROUPS