Death of an insider trading case

An insider trading case died a quiet death, and nobody knew about it for three-and-a-half long years. First suggestions of the death, purported to have occurred somewhere around Christmas of 2010, surfaced on June 27 this year and were officially confirmed on June 30.

On June 27, PTI carried a news report titled, 'The case before SAT (Securities Appellate Tribunal) against Sebi (Securities and Exchange Board of India) not related to insider trading: Reliance Industries.' The report was carried by several news websites such as economictimes.com and profit.ndtv.com.

The detailed RIL statement, on which the report was based, sounded like a response/ rebuttal to earlier news reports on the matter. It said, "Reliance Industries has filed an appeal (appeal No 1 of 2013) before the SAT challenging the order dated January 2, 2013 passed by Sebi, rejecting RIL's consent application. The issue before Sebi in the above matter does not relate to 'insider trading' as has been reported."

"Rejecting media reports that the case pertains to alleged insider trading violation, RIL said the said show-cause notice dated December 16, 2010 from the Sebi alleged that RIL and certain other entities have contravened the provisions of Sebi Act of 1992, the Securities Contracts (Regulation) Act, 1956 and the Sebi (contravention of Fraudulent and Unfair Trade Practices Regulations), 2003," the PTI report said.

As is made clear from the above, from December 16, 2010 onwards, there were no charges under the insider trading regulations against RIL. But, hundreds of reports over these six years, since a letter by Samajwadi Party Member of Parliament Amar Singh to then Sebi chairman C B Bhave detailing the transactions first surfaced in August 2008, have talked about "insider trading in Reliance Petroleum shares" and the progresses and setbacks in the Sebi proceedings. So, were these charges never made by Sebi? Were financial journalists hallucinating?

The SAT order that came three days later threw a bit more light. According to the order, the first showcause was issued in the matter of sale of Reliance Petroleum shares and illegal gains of Rs 513 crore on April 29, 2009, with a corrigendum in October 2009. RIL sought inspection of documents, but filed a reply to show cause in protest, pending permission for inspection. In November 2009, it filed the first consent application, rejected four months later.

Then comes the most important para in the SAT order: "Thereafter, Sebi deemed it fit to reinvestigate the matter. On completion of reinvestigation, Sebi in supersession of its earlier showcause notice dated April 29, 2009, issued a fresh show cause notice on December 16, 2010, in relation to the very same transactions which were subject matter of earlier show cause notice dated April 29, 2009 but with certain modifications, such as dropping the charge relating to insider trading."

Thus, insider trading as an allegation was born in June-August 2008, when Singh and another MP raised it in letters to Bhave. It grew into a charge on a Sebi showcause notice by April 29, 2009, and foster-parented by the media then on. Its death came on December 16, 2010, and was immediately preceded by a 'reinvestigation' done while Bhave was still at helm. It's time Sebi, which has revealed very little so far, tells us what caused the death. We don't mind a detailed post-mortem report.