SEBI Restricts Eight Entities For Alleged Insider Trading; MD Of Poonawallah Fincorp Among Those Barred

The Securities Exchange Board of India (SEBI) passed an interim ex-parte order restraining eight people, including the managing director and the chief executive officer (CEO) of Poonawallah Fincorp, from trading in the stock market after conducting a preliminary investigation.

SEBI’s investigation found certain irregularities in trading of Poonawallah Fincorp, which was formerly Magma Fincorp, prior to its acquisition. On 10 February, Rising Sun Holding Private Limited (RSHPL), owned by the Poonawallah group, announced the acquisition of a controlling stake in Magma Fincorp.

As per the 46-page investigation report, the CEO of Poonawallah Finance Private Limited (PFPL), Abhay Bhutada, was the key contact person during discussions of the agreement. PFPL is a subsidiary company of RHSPL.

The discussion to acquire the company was initiated on 11 January through a call between Abhay Bhutada and the CFO of Magma Fincorp. As per the agreement, Bhutada would become the managing director of the acquired company if the acquisition fructified.

Subsequently, the period from the first call (11 January) to the date of announcement of the acquisition on 10 February became the period of Unavailable Price Sensitive Information (UPSI). The investigation reports that Bhutada informed other entities about the agreement before it became public. The report analyses the call records and bank statements of Bhutada and seven others to come to its conclusion.

According to the analyses, bank transfers were made subsequent to the calls and the profits made were shared among the entities. During the period of UPSI, trades were executed out of the accounts of the seven entities and were sold immediately after the agreement was announced to the public.

After the announcement, the scrips of Magma Fincrop hit the upper circuit of the price bands for seven consecutive days, registering a rise of 47 per cent between 11 to 19 February. The accused people ended up making substantial profits totalling Rs 13.5 crore.

The investigation observed that there was a significant rise in the numbers and duration of calls between Bhutada and another entity during the UPSI period.

Further, a trading account from where the trades were executed was opened on 8 February, just one day prior to the trading.

The interim order by SEBI even orders impoundment of the Rs 13.5 crore unlawful gain made by the entities apart from restricting them from restraining these entities from dealing with securities.

Following this order, Abhay Bhutada resigned from the company with effect from 16 September. The board of directors have accepted the resignation. Vijay Deshwal, the group CEO of Poonawallah Fincorp, would continue to manage its operations.

Recently, SEBI has also taken action against Zee and Infosys for insider trading.