Friday, April 22, 2016

Facebook friends may be treated as connected persons for the purposes of Insider Trading: SEBI

Probably, it is for the first time that SEBI has treated ‘Facebook’ as a relevant factor to determine connections between persons or to establish connection. In instant case, SEBI observed that having "mutual friends" on Facebook will form the basis of determination of connection for the purpose of Insider Trading. Insider means any person who is (i) A connected person; or (ii) in possession of or having access to unpublished price sensitive information.

SEBI's order No: WTM/PS/152/IVD/Feb/2016 dated 4th February, 2016 held guilty Chairman and Managing Director (CMD) and Chief Executive O􀁹icer (CEO) of Paired Technologies Ltd (PTL), a micro-cap which runs, an online mobile accessories store. The PTL had run into financial di􀁹iculties and therea􀁺er it decided to sell its business on a slump sale basis to another entity. The company decided to declare special dividend and also carry out a buyback of shares. Because of this, the shareholders received an amount far higher than the then ruling market price of the shares. Subsequently, the price of the shares also started rising substantially.

It was later on revealed through investigation that the CMD, CEO were part of a cartel of 15 people termed as 'insiders' and were in possession of unpublished price sensitive information (UPSI) on the basis of which they traded in the scrip of PTL. These persons allegedly connected had purchased the shares of PTL at the earlier low ruling price.

How the parties were found connected?

In the aforesaid case, connections with the other parties were found on various grounds. Mr.PS, the Chairman and MD of PTL was a connected person under the Regulations and the