While holding Ramit Chaudhri, former design head of Infosys Ltd, and Keyur Maniar, former senior vice-president and global head for securities and capital markets of Wipro Ltd responsible for insider trading in Infosys scrip, Securities and Exchange Board of India (SEBI) has imposed a total penalty of Rs60 lakh on them. The order, however, says that since he did not receive the proceeds, Mr Chaudhri cannot be made liable for the unlawful gains made from the insider trading.
In an order, Ananth Narayan G, whole-time member (WTM) of SEBI, says, "In the present matter, pursuant to a detailed investigation, SEBI has neither concluded that trades were entered into by Mr Chaudhri during the UPSI period nor that he received any proceeds generated from the insider trading. Therefore, I am of the view that Mr Chaudhri cannot be made jointly and severally liable for the unlawful gains made by Mr Maniar in the instant matter for violation of PIT Regulations."
With respect to the quantum of penalty to be imposed against the noticees, the SEBI WTM noted that, while Mr Chaudhri is not liable for insider trading, he committed the egregious violation of conveying the unpublished price-sensitive information (UPSI) pertaining to Infosys' announcement of the Vanguard deal which resulted in the violation of the provisions of PIT Regulations, 2015 and the penalty to be imposed on him should be commensurate with his violations.
"I also find that for the unlawful gains made by Mr Maniar, for his impugned trades during the UPSI Period, appropriate directions of disgorgement of unlawful gains made along with interest are required to be issued. The illegal gains made by him have already been impounded by SEBI in terms of an interim order dated 27 September 2021 and the alleged unlawful gain have been deposited in an escrow account," the order says.
The investigation by the market regulator found Mr Chaudhri, who was solution design head of Infosys, at the appropriate time, and in the know of the deal, communicated the UPSI to Mr Maniar, an executive of Wipro, who after that traded in the scrip of Infosys, both during pre and post-deal announcement and is made gains of about Rs2.62 crore.
Mentioning records on LinkedIn profile pages, the ex-parte order passed by the then WTM of SEBI, Madhabi Puri Buch, also notes that Mr Chaudhri and Mr Maniar have worked together in Wipro BPS from March 2012 to December 2014.
Interestingly, while Mr Chaudhari, as a team member at Infosys, knew about the Vanguard deal, Mr Maniar, on the other hand, was designated person at Wipro for the same deal. Both Infosys and Wipro were the final contenders for getting the Vanguard deal.
Mr Chaudhari and Mr Maniar challenged SEBI order before the securities appellate tribunal (SAT).
In an order on 27 October 2021, SAT disposed of the appeal directing SEBI to pass the confirmatory order after granting an opportunity for a hearing to these two.
Accordingly, on 13 December 2021, SEBI passed an order confirming directions issued in its interim order with certain modifications. Thereafter, Mr Chaudhari and Mr Maniar challenged SEBI's confirmatory order before SAT.
On 30 March 2022, SAT set aside the directions given in SEBI's interim and confirmatory orders while permitting the direction to deposit the alleged unlawful gain in an escrow account until SEBI passes the final order.
Following further investigation, SEBI issued a show-cause notice (SCN) on 3 August 2023, outlining the violations and proposing penalties, disgorgement of illegal profits, and debarment from the market.
Mr Ananth Narayan observed that in the instant matter, the fact that the tipper and tippee (Mr Chaudhri and Mr Maniar) were in communication with each other has not been disputed and the existence of several calls between the two of them are matter of record. "The unusual trading pattern (which has been already elaborated upon) served to bind the different facets of this case leading to the conclusion on a preponderance of probability that UPSI had in fact been communicated on 8 July 2020, minutes before the tippee (Mr Maniar) began to take positions in violation of Regulation 4(1) of PIT Regulations."
During the hearing, Mr Chaudhari contended that many others who also had access to the UPSI, by virtue of their involvement in the Vanguard deal, could also have passed on UPSI and there is no reason to squarely accuse him with passing on of the UPSI.
The SEBI WTM says he agrees with Mr Chaudhri's assertion that many others in Infosys also had access to the impugned subject matter UPSI. "But of these many others, the question is who was most likely to have passed on this information to Mr Maniar, which could explain the oddity of his (Mr Maniar's) high risk positions in Infosys, that were suggestive of insider trading. This question is answered by identifying who out of these 'many others' had a close relationship with Mr Maniar and who were, as per material available on record, in communication with him at the point in time proximate to the time he engaged in taking buy positions."
"Mr Chaudhri and Mr Maniar admittedly had been in touch for years together, had been in the same profession and industry, and were working in two companies competing for the same deal. Coupled with this, was the long duration call during UPSI period with Mr Maniar who placed trades in the scrip of Infosys within seven minutes after disconnecting the call. For all of the aforesaid reasons, on the preponderance of probability, I am led to the conclusion that it was Mr Chaudhri who had communicated the UPSI to Mr Maniar in violation of Section 12A(e) of SEBI Act and Regulation 3(1) of PIT Regulations, " SEBI says in the order.
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