According to a regulatory notification, India’s securities commission has charged current and former executives at the local branches of PwC and EY, among others, of violating insider trading regulations in connection with a 2022 share sale by Yes Bank.
According to the notice examined by Reuters, the Securities and Exchange Board of India (Sebi) also charged officials at US private equity firms Carlyle Group and Advent International with breaking insider trading regulations by disclosing unpublished price-sensitive information about the deal. Requests for comment were not answered by Advent, Carlyle, EY, PwC, Yes Bank, or SEBI.
Two executives at PwC and EY, as well as five family members and friends, allegedly gained illicit profits by trading Yes Bank shares prior to its 2022 share offering, according to the notice, which was issued in November and was not previously published or made public. The majority of the defendants are still employed by their respective businesses. According to SEBI’s notice, executives from Carlyle, Advent, PwC, and EY in India provided price-sensitive information that was not publicly available, enabling others to trade on it. A former Yes Bank board member was also charged with disclosing private information for trading.
The notification came after an examination of Yes Bank’s stock movements before to a July 2022 share sale in which Carlyle and Advent paid $1.1 billion for a combined 10% interest. On July 29, 2022, the day after the purchase was announced, the bank’s stock opened 6% higher. According to two sources acquainted with the inquiry who requested to remain anonymous due to the delicate nature of the matter, the accused individuals and their companies are getting ready to respond to SEBI’s notice.
In recent years, the regulator has stepped up its efforts to combat insider trading and market manipulation. In a more recent instance, Bank of America’s India division was charged by SEBI with violating insider trading regulations during a fundraising campaign. Nineteen individuals are accused in the notice of violating insider trading regulations. Four people disclosed the sensitive information, while seven traded on it. Eight executives from PwC and EY were cited for having inadequate compliance procedures.
Prior to the share offer, Advent sought input on Yes Bank’s management and contacted EY for tax assistance. Additionally, Yes Bank contracted EY Merchant Banking Services to do valuation work. Carlyle and Advent recruited PwC for tax planning and due diligence at about the same time.
Sebi discovered that executives at PwC and EY violated confidentially regulations by permitting some individuals to trade Yes Bank shares prior to the capital increase. The complaint claims that EY neglected to place Yes Bank on a sufficiently wide “restricted list,” which is a list of businesses in which company leaders are prohibited from trading. The letter stated that although employees directly involved in the transaction were prohibited from trading, others were not, despite having access to sensitive data.
According to Sebi, this went against the law requiring pre-clearance before trading for anyone with access to unpublished price-sensitive information. Because EY’s internal trading policy does not comply with rules, Sebi has requested Rajiv Memani, the chairman and CEO of EY India as well as the company’s chief operational officer, to explain why sanctions should not be applied. “Trading or investing in listed companies with which EY was engaged for advisory, consulting, valuation, investment banking, or corporate finance services (other than audit) was never restricted,” Sebi stated.
Sebi stated that PwC did not have a “restricted stock list” for advice and consulting clients. According to the notice, PwC’s internal policies mandated that employees notify when they initially purchased and sold business shares. Sebi said that this practice allowed subsequent transactions in the Yes Bank case to go unreported. The regulator has also summoned two previous executives and Arnab Basu, PwC’s Chief Industries Officer in India, to address the company’s failure to establish a sufficient code of conduct. Requests for comment from representatives of Memani and Basu, who have not been charged with any misconduct by the regulator, were not answered.
