Insider trading: SAT sets aside Sebi’s order in WhatsApp leak case

In the high profile WhatsApp case, the Securities Appellate Tribunal (SAT) has set aside Sebi’s insider trading charges against few individuals, who circulated alleged unpublished price sensitive information about the financial results of half-a-dozen companies.

The case pertains to the circulation of Unpublished Price Sensitive Information (UPSI) in various private WhatsApp groups about certain companies, including Bajaj Auto, Bata India, Ambuja Cements, Asian Paints, Wipro and Mindtree, ahead of their official announcements to the stock exchanges.

The regulator had penalised Shruti Vishal Vora for releasing UPSI-related to financial results of the six companies through WhatsApp messages prior to official announcements by these companies.

Sebi had also imposed a fine on Neeraj Kumar Agarwal for circulating UPSI-related to financial earnings of Bajaj Auto, Asian Paints and Ambuja Cement. Further, it penalised Parthiv Dalal and Aditya Omprakash Gagar for similar action in the case of Wipro and Bata India earnings, respectively.

Sharing of UPSI by entities before an official announcement amounts to a violation of Sebi’s regulations that prohibit insider trading activities.

Following Sebi orders, these individuals moved SAT arguing the messages mined by the regulator from the devices admittedly would show that none of the appellants were the originator of the messages but they had simply forwarded the messages as received from some other sources.

In fact, Sebi could not trace the source of the messages due to severe technological constraints due to the end-to-end encryption of WhatsApp messages, as per SAT.

However, Sebi’s Adjudication Officer (AO) failed to appreciate that the appellants (Vora, Agarwal, Dalal) were pleading that the WhatsApp messages might have originated from the brokerage houses, or from the estimates found on the platform of Bloomberg which were floated and were in the public domain, SAT said in its orders passed on March 22.

Further, the tribunal said the AO failed to take into consideration that there were numerous other messages of similar nature received and forwarded by the appellants, which did not at all match with the published financial results.

Appellant Shruti Vora in the case of Wipro has specifically pointed out that along with the said message, a similar message regarding Axis Bank had also reached her which she had also forwarded. The published results, in that case, however, were widely different. The AO did not

give any weightage to the same, SAT said.

Noting the definitions of the unpublished price sensitive information and insider, SAT said that generally, available information would not be an UPSI.

The information can be branded as an UPSI only when the person getting the information had knowledge that it was an UPSI, it added.

In the present case, SAT said Sebi failed “to prove any preponderance of probabilities that the impugned messages were unpublished price sensitive information, that the appellants knew that it was unpublished price sensitive information and with the said knowledge they or any of them had passed the said information to other parties”.

Accordingly, the tribunal set aside Sebi’s orders in the case.

Some news reports had referred to the circulation of UPSI in various private WhatsApp groups about certain companies ahead of their official announcements to the respective stock exchanges.

Against that backdrop, Sebi had initiated a preliminary examination in the matter during which search and seizure operation against 26 entities of a WhatsApp group were conducted, and about 190 devices and records, among others, were seized.

WhatsApp chats extracted from the seized devices were examined further and it was found that earnings data and other financial information of around 12 companies were leaked through WhatsApp messages.

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