Leakgate: Sebi expands probe to check insider trades

  • PTI, New Delhi
  • Updated: Mar 17, 2015 22:26 IST

As a probe continues into alleged leak and sale of secret government documents, regulator Sebi is looking into suspected use of such information for 'insider trading' in stocks through a nexus between CAs, brokers and market operators.

Sebi first began looking into the matter last month after a Delhi Police crackdown on a suspected 'corporate espionage' case involving some corporate executives, consultants and a few junior-level staff at the petroleum ministry.

Sources said Sebi has expanded the scope of its probe after the latest CBI action in similar cases relating to leak of classified documents from other government departments, including in the finance and commerce ministries, wherein names of some large corporate houses have also cropped up.

Sebi is looking into whether such leaks were used to manipulate share prices of listed companies, including by the Chartered Accountants, consultants, brokers and even the company promoters and executives, sources said.

Those under the CBI scanner include some well-connected CAs, a number of brokers and corporate executives, who had allegedly received leaked documents including about the progress on economic policies such as foreign investments.

Depending on the progress of the inspection, which involves analysing trading and share price trends in a host of private and public sector companies, including from energy, banking and pharmaceutical sectors, further action would be initiated by the regulator.

Those found to have traded on the basis of stolen information from government offices would be probed under recently revised Insider Trading Regulations, as also under the Prevention of Fraudulent and Unfair Trade Practices (PFUTP) norms, followed by stern penal actions.

Sources said this could be the first major case where new provisions of the Insider Trading Regulations can come into play, as the revised norms contain specific clauses for dealing with cases that involve use of leaked information.

Under the new norms, "no insider shall communicate, provide, or allow access to any unpublished price sensitive information, relating to a company or securities listed or proposed to be listed, to any person including other insiders except where such communication is in furtherance of legitimate purposes, performance of duties or discharge of legal obligations."

It also states that "no person shall procure from or cause the communication by any insider of Unpublished Price Sensitive Information (UPSI)..."

The norms also apply to 'connected persons'. Sebi has defined connected person as "one who has a connection with the company that is expected to put him in possession of unpublished price sensitive information.

"This definition is also intended to bring into its ambit persons who may not seemingly occupy any position in a company but are in regular touch with the company and its officers and are involved in the know of the company's operations.

"It is intended to bring within its ambit those who would have access to or could access unpublished price sensitive information about any company or class of companies by virtue of any connection that would put them in possession of unpublished price sensitive information," the new norms said.

The persons under the scanner also include those on the boards of some listed companies and they could face action under some other regulations as well.

Sources said that suspected foul play in many stocks had earlier also faced investigations, which were launched after the stock exchanges and Sebi came across media reports concerning undisclosed developments about them while resulting in huge movements in their share prices.

The concerned companies had, however, said at that time that they had no information of any 'material events' mentioned in those media reports. With new investigations corroborating the existence of leaked government documents, the assertions made by the companies at that time has now come under suspicion.

It has now come to the fore that those media reports were based on the leaked documents, which could qualify as UPSI.

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