The Allegations Unveiled
The Securities and Exchange Board of India (Sebi) has brought forth accusations against present and former executives at the local arms of PwC and EY,
along with other individuals, for violating insider trading regulations related to a 2022 share sale by Yes Bank. The regulatory notice highlights a breach of rules that mandate pre-clearance for trading by those with access to unpublished price-sensitive information. Sebi's notice names key figures, including Rajiv Memani, EY India's chairman and CEO, and the firm’s chief operating officer, asking them to justify why penalties should not be imposed. The regulator's argument is that EY's internal trading policy did not align with regulations, particularly regarding the inclusion of companies for advisory, consulting, valuation, investment banking, or corporate finance services (other than audit).
PwC's Compliance Failures
PwC's role in the Yes Bank case also came under scrutiny, with Sebi pointing out the absence of a 'restricted stock list' for advisory and consulting clients. The notice stated that PwC's internal rules required staff to declare their share purchases and sales. However, Sebi claimed this practice enabled subsequent trades to go unreported in the Yes Bank situation. Arnab Basu, PwC’s Chief Industries Officer in India, along with two former executives, have been asked by the regulator to address the failure to set up an adequate code-of-conduct framework within the firm. Neither Memani nor Basu has been accused of wrongdoing by the regulator. The notice, which was issued in November but not previously disclosed, indicates that several executives from PwC and EY, alongside family members and friends, allegedly made illegal profits through Yes Bank share trading before the 2022 offering. The investigation involved a total of 19 individuals accused of breaching insider trading rules, with some individuals trading on privileged information and others sharing that same information.
Pre-Share Offering Activities
Prior to the share offering, Advent sought tax advice from EY and sought its feedback on Yes Bank's management. Concurrently, EY Merchant Banking Services was contracted by Yes Bank for valuation work. At around the same time, PwC was employed by Carlyle and Advent for tax planning and due diligence. The regulator has been increasing its scrutiny of market manipulation and insider trading. The notice reviewed by Reuters also named executives at US private equity firms Carlyle Group and Advent International, accusing them of sharing unpublished price-sensitive information about the deal, which violated insider trading rules. The actions taken by the Securities and Exchange Board of India are focused on enforcing fair practices and upholding investor confidence within the financial markets. The incident underscored the need for enhanced regulatory oversight to safeguard the integrity of financial transactions, especially those involving capital raising activities.
Sebi's Regulatory Response
Sebi’s actions are part of a broader crackdown on market manipulation and insider trading, demonstrated by a recent case involving Bank of America’s India unit. The regulatory notice serves as a crucial first step in the investigative process, seeking responses from the accused individuals. The consequences, if the allegations are proven, could range from financial penalties to restrictions under Indian securities laws. The situation underscores the importance of adherence to compliance standards, especially for advisory and consulting firms involved in significant capital raising deals. The actions are happening as Indian companies are actively raising capital, drawing global investors keen on diversifying away from the U.S. markets due to increasing geopolitical tensions. The findings indicate that executives at both EY and PwC failed in maintaining confidentiality, allowing certain individuals to trade Yes Bank shares before the capital raise. Sebi pointed out that EY did not have a robust enough ‘restricted list’ to identify companies where trading by employees was prohibited.
