Salil Parekh, managing director and chief executive officer (MD&CEO) of Infosys has paid Rs25 lakh to settle an insider trading case with market regulator Securities and Exchange Board of India (SEBI). In its investigation, SEBI found that information on the strategic partnership between Infosys and Vanguard was unpublished price-sensitive information (UPSI). Infosys, however, had contended that the information related to the Vanguard deal was not UPSI.
In
an order, Ananth Narayan G, whole-time member (WTM) of SEBI, says, "In view of the acceptance of the settlement terms and receipt of settlement amount by SEBI, the specified proceedings initiated against Mr Parekh vide show cause notice (SCN) dated 3 August 2023 are disposed of in terms of Section 15JB read with Section 19 of the SEBI Act and Regulation 23(1) of the Settlement Regulations on the basis of the settlement terms."
SEBI conducted an investigation to ascertain whether the act of some entities during the period from 29 June 2020 to 27 September 2021 (investigation period) were in violation of the provisions of the SEBI Act and prohibition of insider trading (PIT) regulations, 2015.
On 14 July 2020, Infosys had announced a strategic partnership between the company and Vanguard. As per the announcement, Vanguard was the largest asset manager in the defined contribution space and Infosys would provide a cloud-based record-keeping platform to Vanguard.
The investigation by SEBI referred to Infosys' own analysis that identified the strategic importance of the partnership for the expansion of their own business and revenue and concluded that the said partnership would result in expansion of business for Infosys. The investigation concludes that the information related to the strategic partnership was covered under regulation 2(1)(n)(iv) of the definition of UPSI under the PIT regulations.
The SEBI investigation concluded that Mr Parekh, who has the UPSI, violated provisions of regulations 9A(1) and 9A(2) of the PIT regulations. It then sent an SCN to Mr Parekh, the MD&CEO of Infosys.
Subsequent to the issuance and receipt of the SCN, Mr Parekh filed a settlement application. On 27 December 2023, his authorised representatives met SEBI's internal committee. The internal committee deliberated on the aspect of the violation and suggested the terms of the settlement.
On 2 February 2024, Mr Parekh proposed revised settlement terms to settle the pending proceedings initiated against him.
SEBI's high-powered advisory committee (HPAC), in its meeting held on 4 March 2024, considered the facts of the case and revised settlement terms proposed by Mr Parekh.
The HPAC also noted an undertaking submitted by Mr Parekh for taking certain steps. It includes,
(i) The practice followed within Infosys to identify UPSI has been placed before the audit committee and the board of Infosys for guidance and approval.
(ii) The practice of breaking the total contract value of any deal into average revenue per annum for comparing with the annual revenue of Infosys has also been informed to the audit committee and board of Infosys.
(iii) The practice has been converted into a written and approved policy.
Accordingly, HPAC recommended settling the case upon payment of Rs25 lakh. The recommendation of the HPAC was accepted by the panel of whole-time members of SEBI on 21 May 2024 and a notice of demand was issued to Mr Parekh. In an email on 7 June 2024, Mr Parekh informed that the settlement amount has been remitted, which was confirmed by SEBI.
While disposing of the adjudication proceedings initiated against Mr Parekh in the case, the SEBI WTM says passing of the settlement order is, however, without prejudice to the right of SEBI under regulations 28 and 31 of the settlement regulations to initiate any enforcement action against Mr Parekh.
Earlier in September 2021, while asking to impound the bank accounts of two high-level employees of Infosys and Wipro Ltd, the market regulator had barred both these executives from markets until further orders for insider trading in Infosys shares. The insider trading took place when Infosys announced a partnership with Vanguard.
Interestingly, while Mr Chaudhri, as a team member at Infosys, knew about the Vanguard deal, Mr Maniar, on the other hand, was the designated person at Wipro for the same deal. Both Infosys and Wipro were the final contenders for getting the Vanguard deal.
In an email on 1 February 2021, Wipro informed SEBI that Mr Maniar was categorised as a designated person for the Vanguard deal. Infosys, however, contended that the information related to the Vanguard deal was not UPSI.
In its emails on 22nd February and 16 March 2021, Infosys stated, "The 'partnership' was neither a joint venture nor an acquisition of an entity and accordingly this transaction was not considered as a UPSI of the company and information is not forming part of the structured digital database maintained by the company."
In
an ex-parte order, Madhabi Puri Buch, (the then) WTM of SEBI, however, rejected the contention. "In view of prima facie findings mentioned from paragraph 9 to 27, the submission of Infosys cannot be accepted in the present matter as the information relating to 'the strategic partnership between Infosys and Vanguard' satisfies all the three parameters of the definition of UPSI given under regulation 2(1)(n) of PIT Regulations," she says in the order.
