Sebi bars CEO of Poonawalla Finance, seven others for insider trading

Rs 13.6 crore impounded; analysis by Sebi showed a group of connected entities had taken long positions in Magma Fincorp that were later squared off, generating huge profits

The Securities and Exchange Board of India (Sebi) on Wednesday barred Abhay Bhutada the MD and CEO of Poonawalla Finance and seven others from accessing the securities market for allegedly insider trading in shares of Poonawalla Fincorp—formerly known as Magma Fincorp. The regulator also impounded ill-gotten gains of Rs 13.6 crore.

Sebi’s surveillance alert system detected suspicious trading patterns in the shares of Magma Fincorp ahead of the acquisition of a controlling stake by Adar Poonawalla-led Rising Sun Holding (RSHPL) in February 2021.

An analysis done by Sebi showed that a group of connected entities had taken long positions in Magma and later squared off their positions, generating substantial profits.

After Magma made a preferential allotment of Rs 3,456 crore to the Poonawalla Group, its scrip hit upper circuit for seven straight trading sessions.

Sebi’s examination of call data records revealed that Bhutada, the MD and CEO of Poonawalla Finance, a private subsidiary company of RSHPL, was involved in the deal-making process and allegedly passed on unpublished price sensitive information (UPSI) to some connected entities.

Further, analysis of bank statements revealed that the wrongful gains were shared between the connected entities.

Sebi also found that individuals who took large positions in the Magma stock ahead of the deal announcement had not traded in the scrip before.

“The preventive directions are warranted, since Bhutada has now been elevated to the position of MD of Magma (now Poonawalla Fincorp) and has access to ongoing UPSIs of the company,” Sebi has said in an ex parte interim order.

The regulator said urgent action was taken against the eight entities to protect the interest of investors and ensure market integrity.

In order to crack down on insider trading, Sebi has deployed sophisticated data analytical tools, which help detect abnormal and suspicious trading patterns.

In the recent past, the regulator has passed orders for breach of insider trading norms in companies such as Infosys and Zee.

Experts say Sebi’s recent crackdown on insider trading using technology driven tools has sent a strong signal to the market.