INSIDER TRADING

Trading of a public company’s stock or other securities based on material, nonpublic information about the company. In various countries, some kinds of trading based on insider information is illegal. This is because it is seen as unfair to other investors who do not have access to the information, as the investor with insider information could potentially make larger profits than a typical investor could make.

MISAPPROPRIATION THEORY

It states that anyone who misappropriates material non-public information and trades on that information in any stock may be guilty of insider trading. This can include elucidating material non-public information from an insider with the intention of trading on it, or passing it on to someone who will.

INDIA

Insider trading in India is an offense according to Sections 12A, 15G of the Securities and Exchange Board of India Act, 1992. Insider trading is when one with access to non-public, price-sensitive information about the securities of the company subscribes, buys, sells, or deals, or agrees to do so or counsels another to do so as principal or agent. Price-sensitive information is information that materially affects the value of the securities. The penalty for insider trading is imprisonment, which may extend to five years, and a minimum of five lakh rupees (500,000) to 25 crore rupees (250 million) or three times the profit made, whichever is higher.

CASE

Sun Pharmaceutical, its managing director Dilip Shanghvi, chairman Israel Makov and eight others have settled a probe by markets regulator Sebi into alleged violation of insider trading norms on a payment of Rs18 lakh towards settlement charges.While Sebi didn’t disclose details of the case, it appears to be related to acquisition of Ranbaxy by Sun Pharma from Japanese drugmaker Daiichi, as the settlement with the regulator has also been done by former Ranbaxy CEO Arun Sawhney, Daiichi’s director Kazunori Hirokawa, its ex-Chairman Takashi Shoda and its former senior executive officer Tsutomu Une. Shoda is said to have led Daiichi’s acquisition of Ranbaxy in 2008, though the Japanese giant had to eventually sell its stake in the company to Sun Pharma in 2014. Besides, the settlement has been done by Ranbaxy’s former secretary S K Patawari; Sun Pharma’s directors Sudhir V Valia and Sailesh Desai; and its company secretary Sunil Ajmera. Sebi agreed to settle proposed adjudication proceedings in the case, pertaining to violation of the “internal code of conduct for prevention of insider trading” framed by the company, after it was approached by these 11 entities with a plea under the settlement regulations “without admitting or denying the findings of fact and conclusion of law”. “The proposed adjudication proceedings for the alleged violation… are settled,” Sebi said in a settlement order passed yesterday adding it would not initiate any enforcement action for the alleged defaults. These 11 entities allegedly violated internal code of conduct for prevention of insider trading framed by the company under Sebi’s PIT (Prohibition of Insider Trading) norms. Pending adjudication proceedings, these 11 entities had approached Sebi earlier this year to settle the case on payment settlement charges. Thereafter, Sebi’s High Powered Advisory Committee recommended the case for settlement on the payment of Rs18 lakh. This was also approved by Sebi’s panel of whole-time members, following which they remitted the amount.

Accordingly, the Securities and Exchange Board of India (Sebi) has disposed of the adjudication proceedings initiated against them. It further said that enforcement actions, including commencing or reopening of the proceedings, could be initiated if any representation made by them is found to be untrue.