WHETHER “LIKES” POSTED BY YOUR FRIENDS ON PICTURES POSTED BY YOU ON YOUR TIMELINE IN FACEBOOK, LINKEDIN OR TWITTER CAN BE CONSIDERED AS INSIDER TRADING UNDER SEBI PIT?

WHETHER “LIKES” POSTED BY YOUR FRIENDS ON PICTURES POSTED BY YOU ON YOUR TIMELINE IN FACEBOOK, LINKEDIN OR TWITTER CAN BE CONSIDERED AS INSIDER TRADING UNDER SEBI PIT?

Deep Industries Limited (DIL)

During April 2018 , SEBI Indicted  Rupesh Kantilal Savla and Sujay Ajitkumar of for insider trading violations. In this case, SEBI examined their Facebook profiles and found they were ‘friends’ on the social networking site and many of their friends in the Facebook  had ‘liked’ pictures posted on their timelines and on those of their wives. 

SEBI’s FINDINGS

SEBI claimed that on the basis of this social association,  they were connected to each other and had access to unpublished, price-sensitive information. “…an insider can be by way of their association in any capacity or it can be by way of frequent communication with its officers, which can also be in their social capacity as evident in this case by frequent interactions, including on social media .

MERE CLICK CANNOT BE CONSIDERED AS INSIDER TRADING

The SEBI order makes an unrealistic assessment of social media where people get connected by a mere click of button with strangers. Often, unknown people are followed to keep track of information about professional, personal, social or even vocational interests. They disconnect too, with a single click and usually the other person does not even come to know that he/she has been disconnected .

INSIDER TRADING ALLEGATION

The case pertains to insider trading in the shares of an oil & gas company, Deep Industries Limited .The company was awarded three contracts for hiring of drilling rigs between August and October 2015.

There was a time gap between the date the company was declared a top bidder and the announcement of the award. 

PRICE SENSITIVE INFORMATION

Since the value of the contracts constituted a significant percentage of the total revenues of the company, this information was considered price sensitive. Until the stock exchanges were informed, company officials were restricted from dealing in the company’s shares.

There was a time gap between the date the company was declared a top bidder and the announcement of the award. 

LEAKAGE OF INFORMATION BEFORE INFORMATION TO STOCK EXCHANGE 

Since the value of the contracts constituted a significant percentage of the total revenues of the company, this information was considered price-sensitive. Until the stock exchanges were informed, company officials were restricted from dealing in the company’s shares. 

Sebi’s investigation found that Savla, managing director of DIL, acquired shares of the company during this period before the information was made public. Similarly, Sujay Hamlai and his firm V Techweb India (where he held 50% stake), also bought shares before the information was made public.

They, however, sold shares after the information was publicly announced, raking in profits.

INSIDER TRADING RULES

Insider trading rules say the person should be connected in any capacity, including by reason of frequent communication. Besides, the connection should be such that it allows the person, directly or indirectly, access to unpublished, price sensitive information or is reasonably expected to allow such access. 

WHETHER CLICK ON FACE BOOK AMOUNTS TO INSIDER TRADING

Relying on Facebook ‘connections’ to make serious charges such as insider trading would be misdirected policy and also raised privacy questions.

Unless independent evidence authenticates it, virtual connection alone is not evidence of the fact and its admissibility is questionable, all the more in an ex-party civil sanction .

IS IT VIOLATION OF FUNDAMENTAL RIGHTS?

“It also raises a larger debate on fundamental right to privacy of a citizen and Sebi’s need to conduct surveillance on social media under securities laws. From the angle of jurisprudence, this would be a serious concern in regulatory laws .

Courtesy : Economic Times