Poonawalla Fincorp's MD Resigns After SEBI Order On Insider Trading Allegations
SEBI had on Wedneday held that Bhutada was a common thread of information for all entities that had traded in Magma's shares.
Poonawalla Fincorp Ltd.'s Managing Director Abhay Bhutada resigned on Thursday following the market regulator's allegations of insider trading against him. Vijay Deshwal, group CEO of the non-bank lender, will continue to run its operations.
The Securities and Exchange Board of India on Wednesday passed an interim ex-parte order against Bhutada and seven other individuals for trading in securities of Magma Fincorp Ltd. while in possession of unpublished price sensitive information.
Bhutada, on Sept. 15, denied all allegations in the order, including receiving any financial benefit directly or indirectly from the entities. Appropriate legal recourse will be taken, he said.
I have not shared any unpublished price sensitive information directly or indirectly to the entities mentioned in the order except the official discussion with entity number 2 who was working as an advisor for the acquisition transaction.Abhay Bhutada, MD, Poonawalla Fincorp Ltd.
SEBI had received a system generated insider trading alert in the scrip of Magma Fincorp for February 2021, when the corporate announcement was made regarding acquisition of controlling stake in the company by Rising Sun Holding Pvt. Ltd., a Poonawalla Group company.
Magma Fincorp, now known as Poonawalla Fincorp Ltd., had made a preferential allotment to Rising Sun Holding to raise Rs 3,456 crore. The capital raise via preferential issue route was unpublished price sensitive information which Bhutada had passed on to the other persons and made gains, according to the SEBI's interim order.
The corporate announcement on the capital raise led to a 47.3% increase in Magma Fincorp's share price to Rs 125.25 during Feb. 10-19, 2021.
"The price movement in the scrip of the company subsequent to the corporate announcement also resulted in hitting upper circuit of the price bands for seven consecutive trading days"- SEBI Order.
SEBI's Allegations
The regulator has pointed out the modus operandi of the eight individuals in carrying out the alleged insider trading activity:
The regulator relied on call data records, bank statements and financial dealings to show that Bhutada was connected with three of the individuals who traded during the time when preferential issue information was unpublished price sensitive information.
The remaining are connected to the three who received the information directly from Bhutada, who was an insider.
There were phone calls among these individuals during the relevant period, which were followed by transfer of funds.
These individuals bought significant number of shares of the company prior to the announcement of the information and sold them subsequent to the announcement.
These individuals have prima facie generated substantial amounts of profit.
The strong connections between the entities involving financial dealings, frequent telephonic calls and other business relations amongst the entities go on to constitute a robust set of evidence on the basis of which even a layman can see a reasonably strong probability of (Bhutada) being the source of unpublished price sensitive information to these entities.SEBI Order
The regulator also observed that some of these entities, that took large positions in the Magma stock ahead of the deal announcement, hadn't traded in the scrip before.
SEBI, thus, restricted the eight entities from accessing the securities market until further orders. A cumulative penalty of over Rs 13 crore was also imposed on them. The SEBI order also directed seizure of bank accounts and restraint over alienation of assets without prior permission.
"There is a high probability that there is an imminent threat of further insider trading activities. Urgent preventive steps are required to be taken to prevent them from causing any further harm to the market / loss to investors ...."SEBI Order
The regulator has granted them 21 days to file replies or objections.
BloombergQuint has refrained from naming the other seven individuals since the regulator's order is ex-parte and they couldn't be reached for a comment immediately.
(Corrects an earlier version that misstated Abhay Bhutada as also the chief executive officer of Poonawalla Fincorp Ltd.)