Abhay Bhutada, managing director (MD) and chief executive officer (CEO) of Poonawalla Fincorp Ltd (erstwhile Magma Fincorp) has resigned soon after market regulator Securities and Exchange Board of India (SEBI) barred him and seven others for insider trading in Magma Fincorp just before the Poonawalla group acquired it. SEBI has also impounded ill-gotten gains worth Rs13.6 crore from the bank accounts of these eight persons to the extent of their respective liability in an insider trading case. Magma Fincorp was renamed Poonawalla Fincorp after the Cyrus Poonawalla group, which owns the top vaccine maker Serum Institute of India (SII), bought it.
In a regulatory filing, Poonawalla Fincorp says, "Abhay Bhutada, MD of the company has resigned from the board of the company with immediate effect from 16 September 2021, and the board of directors of the company has accepted Mr Bhutada's resignation. Consequently, Mr Bhutada ceases to be a director and key managerial personnel of the company."
The seven other individuals named by SEBI in its order are Saumil Shah, Surabhi Kishore Shah, Amit Agrawal, Murlidhar Bagranglal Agrawal, Rakesh Rajendra Bhojgadhiya, Rakesh Rajendra Bhojgadhiya and Abhijit Pawar.
In February 2021, SEBI’s surveillance alert system detected suspicious trading patterns in the shares of Magma Fincorp ahead of the acquisition of a controlling stake by Adar Poonawalla-led Rising Sun Holding (RSHPL). The Poonawallas of Serum Institute group acquired Magna Fincorp and renamed the company.
An analysis done by the market regulator showed that a group of connected entities had taken long positions in Magma Fincorp and later squared off their positions, generating substantial profits. After Magma Fincorp made a preferential allotment of Rs3,456 crore to Poonawalla group, its scrip hit the upper circuit for seven straight trading sessions.
SEBI conducted a detailed investigation. The examination of call data records revealed that Abhay Bhutada, MD and CEO of Poonawalla Fincorp, a private subsidiary company of RSHPL, was involved in the deal-making process and had allegedly passed on unpublished price sensitive information (UPSI) to some connected entities.
The investigation found that Abhay Bhutada, who possessed the unpublished price-sensitive information regarding the acquisition, shared it with Saumil Shah, Rakesh Bhojgadhiya and Rakesh Bhojgadhiya Hindu undivided family (HUF).
This information was used by Saumil Shah, Rakesh Bhojgadhiya, Rakesh Bhojgadhiya HUF, Surabhi Shah, Anil Agrawal, Murlidhar Agrawal and Abhijit Pawar to trade in the stock of Magma Fincorp before Rising Sun Holdings’ acquisition of Magma Fincorp was announced to the stock exchanges.
“It can now be prima facie held that the entities, by pursuing a modus operandi, have carried out insider trading activities in the scrip of Magma Fincorp, wherein each entity has played his or her respective part in pursuance of the said modus operandi,” SEBI says in its order.
“It is noticed that there were phone calls among the eight entities during the relevant period and the phones calls were followed by transfer of funds … persons enjoying connection through phone calls …. traded in the scrip of Magma Fincorp in advance of the event…,” SEBI said.
Further, analysis of bank statements revealed that the wrongful gains were shared between the connected entities. SEBI also found that individuals who took large positions in the Magma Fincorp stock ahead of the deal announcement had not traded in the scrip before.
“The preventive directions are warranted since Mr Bhutada has now been elevated to the position of MD of Magma Fincorp (now Poonawalla Fincorp) and has access to ongoing UPSIs of the company,” the regulator said in an ex-parte interim order.
The regulator said urgent action was taken against the eight entities to protect the interest of investors and ensure market integrity.
“If the entities have any open position in any exchange-traded derivative contracts, as on the date of the order, they can close out/square off such open positions within three months from the date of order or at the expiry of such contracts, whichever is earlier,” SEBI says.
The involved individuals have been ordered to submit the impounded money into an escrow account within the next 15 days.
Adar Poonawalla, CEO of Serum Institute of India, is also the chairman of Poonawalla Finance, a non-deposit taking non-banking finance company (NBFC).
Shares of the company have risen nearly 400% in the past one year. Poonawalla Fincorp has reported a 72% year-on-year jump in profit before tax of Rs81 crore for the quarter ended June on consolidated basis, while its assets under management (AUM) stood at Rs14,424 crore.