Tag: india insider trading laws

US SEC Charges Three Indians in Insider Trading Ring Spanning Three Countries

Rajeshwar Gannamaneni provided nonpublic information about impending mergers, acquisitions, and tender offers to his wife, Deepthi Gandra and his father, Linga Rao Gannamaneni, the Securities and Exchange Commission said in a statement. 

New York: An Indian IT contractor, his wife and father have been charged in the US with insider trading after he illegally tipped them with confidential client information he stole while working in the Singapore branch of an investment bank.

Rajeshwar Gannamaneni, 36, is a citizen of India with a last known residence in Singapore. He provided nonpublic information about impending mergers, acquisitions, and tender offers to his wife, Deepthi Gandra, 33 and his father, Linga Rao Gannamaneni, 68 who lives in India, The Securities and Exchange Commission said in a statement.

The SEC obtained a court-ordered freeze of assets in three US brokerage accounts and one US bank account connected to the alleged trading. The SEC’s complaint alleges that between December 2013 and August 2016, Gannamaneni abused his position as a senior software consultant at the investment bank and accessed sensitive, highly-confidential information concerning at least 40 mergers, acquisitions, tender offers and other significant corporate events of the investment bank’s clients.

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Gannamaneni then illegally traded on that information and shared it with his father and wife who unlawfully traded on it, collectively realizing illicit profits of about USD 600,000.

He also allegedly traded in an account that he controlled that was opened in the name of a family member, who was living in the US at the time. Gannamaneni asked this family member, a cousin who at the time lived in Virginia, to open an investment account at an American brokerage firm, so that he could place trades in this account from Singapore.

“As alleged in our complaint, Gannamaneni abused his work-related access to sensitive, market-moving nonpublic information to enrich himself and those he tipped,” said Kelly L. Gibson, Associate Director of Enforcement in the SEC’s Philadelphia Regional Office. “Our continued use of innovative analytical tools to find suspicious trading patterns and expose misconduct demonstrates our resolve to catch insider traders who seek to take illegal advantage of the US markets for personal gain.”

The SEC’s complaint charges the defendants with fraud and seeks disgorgement of allegedly ill-gotten gains, pre-judgment interest, penalties, and injunctive relief.

(PTI)

WhatsApp Earnings Leak Shows SEBI Must Monitor Insider Trading on Social Media

This new technology presents a challenge but the problem of insider trading is hardly new. The regulator must rise to this new challenge if it is to maintain its reputation for efficiency.

This new technology presents a challenge but the problem of insider trading is hardly new. The regulator must rise to this new challenge if it is to maintain its reputation for efficiency.

Messages were being circulated in private Whatsapp groups frequented by equity traders. Credit: Reuters

The Securities and Exchange Board of India will investigate possible leaks of company earnings in social media chatrooms after a Reuters investigation documented at least 12 cases of prescient messages about major Indian companies being posted in private WhatsApp groups. This author explains why SEBI should try to create means of observing this medium and others like it.

A recent Reuters news report identifies a dozen messages that accurately predicted Q2 earnings patterns (and a bonus announcement in one case) for specific listed stocks. In each case, the messages were being passed around, just before the results were officially announced. These messages were being circulated in private Whatsapp groups frequented by equity traders. These were all big companies – in fact, more than half of the stock concerned are members of the Nifty-50.

WhatsApp, an instant messaging service owned by Facebook, is a popular platform for all sorts of sensitive communications. It is encrypted end-to-end, making it impossible for even the service provider to monitor content.

There are many private groups of equity traders on the Whatsapp platform and the circulation of messages claiming to have credible “khabar” seems to be quite common. Such messages are often wildly inaccurate, and sometimes they are just rehashes of known consensus estimates. But in the cases mentioned in this report, the messages were extremely accurate and much closer to the reality of the results than the consensus estimates.

Even in such cases, it is unclear if the messages consist of genuine inside information or merely of accurate guesses based on public information. Dissemination of the former would be illegal under India’s insider trading laws, even if nobody traded upon the information.

Assuming that such a message is being circulated, finding the origin of the message is technically possible because the Whatsapp service has a time-stamp and the service provider could trace the phone number from where the message initially originated. In addition, SEBI has the power to call up transaction records from the exchanges and to check if there has been unusual trading patterns in a given stock at the critical period to tie any such trading patterns to any messages.

Given the accuracy of some of the messages cited by the report, the regulator, SEBI, should definitely take cognisance of the situation and carry out an investigation. If it does discover that any of these messages originated from insiders, SEBI has the power to hand out prison sentences, or fines, or both.

More broadly, SEBI should try to create means of observing this medium and others like it. While Whatsapp is the most popular of the encrypted instant message platforms, there are several others like it. Other market regulators such as America’s SEC also have to deal with the issue of price-sensitive information being passed through such mediums.

It is not easy given the end-to-end encryption but it is possible for example, to set up specialised units to track and monitor such a medium. It is also possible for SEBI to set up an email id, for example, where such messages can be anonymously forwarded for analysis. That would give the regulator some idea about the scale of the problem and an opportunity to judge which messages are credible and actionable and worth following up.

This new technology presents a challenge but the problem of insider trading is hardly new. The regulator must rise to this new challenge if it is to maintain its reputation for efficiency.

By arrangement with Business Standard.