Markets regulator Sebi on Monday imposed a total penalty of over Rs 22 crore on Aurobindo Pharma, its promoter PV Ramprasad Reddy, his wife P Suneela Rani and other connected entities for violating insider trading norms.
The regulator conducted an investigation into the trading in the scrip of Aurobindo Pharma Ltd (APL) during the period from July 2008 to March 2009 to ascertain the regulatory violation.
The probe found that the promoter entities traded in the scrip of APL based on unpublished price sensitive information or UPSI pertaining to the company's Licensing and Supply Agreements with Pfizer Inc and made "unlawful gains".
It further said that Ramprasad Reddy, chairman as well as promoter of APL; his wife P Suneela Rani; Kambam P Reddy, promoter and brother of APL's MD; Trident Chemphar (a company belonging to the promoter group of APL); Veritaz Health Care (connected to APL through common address, e-mail id, acquisition of brands connected to APL, sourcing of supplies from APL) and Top Class Capital Markets (connected to Veritaz Health Care through fund transfers proximate to trades executed in the scrip of APL) have been considered as 'insiders' due to their connection with APL.
These entities "purchased shares while in possession of the UPSI pertaining to APL, and made unlawful gains from having purchased shares of APL at a lower price before publication of the UPSI on March 3, 2009" and thereby violating insider trading rules.
Recognising that insider trading is a serious violation which vitiates the integrity and undermines confidence of investors in the markets, Sebi said "promoters and persons closely connected with the company have obtained unfair advantage by trading while in possession of UPSI which was not available with ordinary investors".
Further, Sebi said that APL failed to close the trading window (for employees and directors) during the UPSI period and thus violated 'Model Code of Conduct' for Prevention of Insider Trading (PIT) rules.
Besides, the company failed to disclose the price sensitive information regarding the Licensing and Supply Agreements to the stock exchange.
Under the norms, at the time when UPSI remained unpublished between July 22, 2008 and March 3, 2009, the trading window was required to be closed.
APL had a significant role in determining the period when the UPSI was in existence and enforcing corresponding trading window restrictions, as well as ensuring that price sensitive information did not remain unpublished for a long duration, Sebi said.
The absence of timely disclosures by the company, apart from being in violation of the stipulations in the Listing Agreement, Model Code of Corporate Disclosure Practices and Model Code for Prevention of Insider Trading as prescribed in the PIT Regulations also gave rise to information asymmetry between PSI available to insiders of the company and ordinary investors, which was exploited by the promoter and related entities to carry out trades when in possession of the PSI, it added.
By indulging in such trades, Sebi said Ramprasad Reddy made notional profits to the tune of Rs 2.6 crore, Rani (Rs 95.44 lakh), Kambam P Reddy (Rs 2.3 lakh), Trident Chemphar (Rs 2.96 crore) and Top Class Capital Markets (Rs 3.77 crore), while Veritaz Health Care incurred a notional loss of Rs 1.02 crore.
Accordingly, the Securities and Exchange Board of India (Sebi) slapped a fine of Rs 2 crore on Aurobindo Pharma, Rs 7.5 crore on Top Class Capital Markets, Rs 6 crore on Trident Chemphar, Rs 5 crore on Ramprasad Reddy; Rs 2 crore on Rani and Rs 10 lakh each on Kambam P Reddy and Veritaz Health Care.