SEBI To Take Action Against Market Operators, Company Executives In WhatsApp Leak Case

More than six months after price-sensitive financial details of over 24 companies were leaked ahead of their earnings announcements on WhatsApp and other social media platforms, the Securities and Exchange Board of India (SEBI) will take action against some market operators and senior staff members of about 12 listed bluechip firms.

According to reports, these companies may also have to endure censure action by SEBI following “alleged lapses in the safeguard mechanism to check leak of unpublished price sensitive information (UPSI), including financial results before they were made public for all investors.”

The officials stated that SEBI will soon complete its probe in the matter, which also includes suspected unlawful gains through insider trading on the basis of leaked information. With this, it is collating the details it has received from all the companies.

Further, almost all the companies have replied to SEBI’s queries in this regard.

SEBI has turned its scanner on auditors, brokers, analysts, and investment advisors, apart from company executives, with whom the financial information was shared before being made public through regulatory disclosures on stock exchanges. The investigation concerns about a dozen listed firms.

According to SEBI’s Listing Obligation and Disclosure Requirement (LODR) and Prevention of Insider Trading (PIT) regulations, price-sensitive information needs to be uniformly disclosed through stock exchange platforms. Possession and circulation of unpublished price-sensitive information constitutes a violation of PIT regulations.

In its directions, SEBI had asked the companies concerned to conduct internal investigations to identify those guilty of the leak and take steps to check any recurrence, and also provide necessary information to the regulator within three months.

The report added that SEBI is toughening its stand on the companies that haven’t fixed individual responsibility for the leak of such information.

Also, along with market operators, employees of some brokerage firms have also been examined for colluding with the tainted company executives.

The market regulator had sought these details through its interim order. HDFC Bank confirmed that it has shared the requisite information with SEBI; the bank stated this in a regulatory filing.

Conforming to SEBI’s February 23 directions, HDFC Bank said, “In this regard, and keeping with its commitment to the highest standards of corporate governance and the integrity of its systems, controls, and processes, the bank has submitted the requisite information and reports to SEBI in compliance with the SEBI directions and within the timelines prescribed therein.”

Initial orders were also passed against Tata Motors, Axis Bank, and Bata India in the case, wherein they were asked to conduct internal probes and report back to the regulator.

Inc42 had earlier reported that in a preliminary examination of the matter, SEBI found that the leaked information almost matched Tata Motors’ earnings report for the quarter ending in December 2015. This essentially means that the information was likely in circulation on WhatsApp even before the official announcement.

The regulator had also conducted search and seizure operations in this regard at various places, including on the premises of various market entities.

Earlier, the Facebook-owned WhatsApp had refused to share user data with the market regulator on grounds of privacy, as WhatsApp is not obliged to share user-specific information with SEBI. However, if the company decides not to cooperate, the market regulator could take the matter to court against WhatsApp.

At the time when data security and privacy have become a major cause for concern, fuelled by Facebook-Cambridge Analytica debacle across the world and UIDAI Aadhaar breaches in India, SEBI’s stance on the WhatsApp leak of price-sensitive information is bound to cause a major upheaval.

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