Sebi faces legal challenge in probe over prescient messages

A series of raids by the Securities and Exchange Board of India (Sebi), investigating whether corporate announcements were prematurely leaked by market participants in social media chatrooms, were the largest it has conducted.

But despite the scale of the action, the market regulator will likely face several tough legal challenges in any prosecutions, according to four lawyers, including two former officials of the regulator.

Dozens of Sebi officials raided offices and homes of brokers on December 22, seizing mobile phones and laptops, one regulatory source told Reuters. As many as 30 brokers were targeted in the action, according to local media.

Sebi has broad search-andseizure powers that enable it to seize “books, registers, other documents” and records of anyone associated with securities markets, according to the regulations laid out in the official

act that governs the regulator’s activity.

Those powers would likely allow the regulator to withstand in court any challenge to the seizure of electronic gadgets, the lawyers interviewed by Reuters said. But whether Sebi has legal rights to get into individual social media accounts does not appear to have been established, the lawyers said.

They said they were not aware of any explicit law in this regard. That would mean that the regulator would have to make a case that such accounts should be considered “books, registers, other documents”

and records, they said. The regulator has not responded to requests for comment. A senior Sebi official expressed confidence that the regulator would be able to successfully prosecute any cases that came out of the investigation. “We have enough powers to proceed,” the official said on conditions of anonymity.

The market regulator was, “testing if the powers given to us can stand the scrutiny of law. If not, we will again ask for amendment to the regulations and laws. We will strengthen it,” he added.

Sebi chairman, Ajay Tyagi, at a press conference on Thursday said pursuing suspected illegal activity taking place on social media was new territory for the regulator.

“Precedence, of course, there isn‘t,” he said. But market participants “cannot hide behind technology”, he said.

The lawyers interviewed by Reuters said defendants would likely counter efforts by Sebi to access their social media accounts on privacy grounds.

“An individual who is involved could challenge the access to his or her social media as a constitutional breach of privacy,” said Sandeep Parekh, a partner with Finsec Law Advisors, and former head of enforcement at Sebi.

“Violation of privacy rights is definitely one of the potential challenges Sebi faces,” said Vaneesa Agrawal, a former Sebi official, who is now a partner at Suvan Law Advisors.

Parekh said the challenge for Sebi was that any case on privacy issues would “take its time” to wend its way through India’s legal system.