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Regulator seeks more teeth to curb insider trading offences

BS Reporter  |  Mumbai 

To bring to book those suspected of insider trading, the Securities and Exchange Board of India (Sebi) has sought more teeth for its investigation capabilities, similar to those in the United States.

In the background of the conviction of Indian-origin ex-Goldman Sachs director, Rajat Gupta, on charges of insider trading, Sebi has felt the need to have access to call records to nail those involved in such grave offences.

When questioned on why those suspected of insider trading are not brought to book in India, unlike in the US, Chairman U K Sinha said, “US regulations allow wiretapping. The evidence in a majority of insider trading cases in US have been obtained by way of wiretapping. In India, Sebi has no such powers.”

Wiretapping, or telephone tapping, is the process of monitoring telephone conversations by a third party, mostly an enforcement agency.

In the US, prosecutors used details of telephone conversations and emails to convince jurors that Gupta had leaked boardroom secrets to his former friend, hedge fund manager Raj Rajaratnam, currently serving an 11-year sentence for insider trading.

Sinha said the legal situation in India was different from the US. He said insider trading offences can be curbed with the use of technology. Though insider trading is believed to be rampant in India, there has been little effective action against it, due to lack of analytical tools in the hands of the regulator.

For several years, Sebi has been requesting the government for access to call records. But this request has not yet been accepted.

“Sebi is not asking for wiretapping. The limited thing we are asking (the government) is to allow us to have call data records,” Sinha said on the sidelines of an event today. He went on to explain: Suppose, A has indulged in insider trading with B, but insists he does not know B. Using call data records, if Sebi can show that A has spoken to B, say, 10 times a day, that could be a major evidence. According to Sebi’s annual report for 2010-11, the equity market regulator took up investigations in 28 insider trading cases and completed 15 during the year.

Sinha said Sebi has left out serious offences like insider trading in the recently introduced consent process. “There will be an adjudication process and punishment for insider trading. Won’t let insider traders be guilt-free under consent mechanism,” he said.

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First Published: Fri, June 22 2012. 00:53 IST