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FIs face insider trading charges

india Updated: Jan 14, 2009 20:37 IST
Devraj Uchil

The Securities and Exchange Board of India (SEBI) is investigating into possible insider trading in shares of the tainted Satyam Computer Services Ltd.

“Yes, we are looking into the the issue of insider trading,” a senior official at SEBI said. “But our first focus is going to be on insiders, that is, people who knew what was happening and sold the shares. We will next look at institutional shareholders. But we will need to establish that they knew what was happening. That's going to be tough.”

Analysts too said insider-trading charges against institutional investors for large-scale selling of shares of the tainted Satyam Computer Services Ltd would be difficult to prove.

According to SEBI’s regulations, an insider means any person who is or was connected with the company or is deemed to have been connected with the company and who is reasonably expected to have access to unpublished price-sensitive information, or has received or has had access to such unpublished price-sensitive information.

There was across the board selling by investors since mid-December 2008, till the first week of January 2009, said a research head with a foreign brokerage.

The fact that the promoter family was financially in dire straits could have been common knowledge for institutional investors, given the fact that the promoters had pledged nearly all of their 8.6 per cent stake and were not in a position to meet margin calls after the value of those pledged shares fell sharply, analysts said.

Some of the institutions which sold Satyam shares were lenders to the company’s promoters and had sold the shares pledged by Raju and his family members on their failure to pay shortfalls in margin money requirements.

The promoters are speculated to have borrowed over Rs 1,000 crore. The fall in the Satyam scrip resulted in the market value of the shares pledged falling to almost half the loan amount.