It's the first in Indian corporate history that a company CFO has been charged and indicted of insider trading: Rajiv Gandhi, Director-Corporate Finance and Company Secretary of one of India's leading pharmaceutical companies-Wockhardt.
The Securities Appelate Tribunal, or SAT, has upheld a November 2006 Sebi order that charged Wockhardt CFO Rajiv Gandhi, his wife and his sister of insider trading.
The Tribunal's order states, “We uphold the appelants guilty of insider trading."
Whilst this is not India's first insider trading case, it is by far unique because the accused is part of the company's senior management and Wockhardt is an over Rs 2,600 crore giant.
Who is Rajiv Gandhi?
He is a Wockhardt board member and is instrumental in the demerger of group companies. He is responsible for all mergers and acquisitions and was a Wockhardt employee for over 10 years.
His key deals include the buyout of Pinewood (Ireland), Negma Labs (France) and Morton Grove (USA). He was also instrumental in negotiating the Andrx buyout.
Wockhardt issued a statement saying, “We are considering/studying the judgement and its implications. We will take appropriate measures after thorough review and investigation."
Modus Operandi:
Gandhi's wife and sister traded in Wockhardt shares. They traded prior to important financial events.
On January 21, 1999, there was a Wockhardt Board meet on results and interim dividend at 5pm. Wife Sandhya and sister Amishi Gandhi sold 2,100 shares at 2:37 pm and 2:42 pm.
On January 22, 1999, the company announced results and interim dividend pre-trading. Amishi and Sandhya Gandhi sold 1,500 shares at 9.59 am and 10.04 am.
On April 22, 1999, the board meeting on results and demerger took place at 11.30 am. Amishi Gandhi sold 1,200 shares at 11.33 am.
The Sebi order of November 2006 quoted trading patterns from January to October 1999. It found Rajiv, Sandhya and Amishi Gandhi guilty of insider trading and imposed a penalty of Rs 5 lakh in 2006.
The SAT order of May 2007 alleged that appelants traded in the scrip before and after board meetings held to consider financial results. The trades were executed on the basis of price sensitive information not available to investors in general.
Road ahead for Gandhi:
Somashekhar Sundaresan of J Sagar Associates, cousel for Rajiv Gandhi, said this did not constitute insider trading and would be appealing against the order in the Supreme Court. “Our position is quite different. This did not constitute insider trading. We are talking about transactions that happened in 1999. You are asking me a question with the perspective of a new law that came in 2002. We have just got the order and are reading it. There is a statutory right to appeal and I cannot really get around into discussing the merits of the case. But we will surely be filing an appeal in the Supreme Court.”
On the standards of corporate governance in this country, Sundaresan said, “I am not at liberty to discuss that. That is a question you should ask the company. Our defence has been that the facts as they are, applying the law as it stood, does not constitute insider trading.”
Link to the article: http://www.moneycontrol.com/india/news/business/wockhardt-cfo-found-guiltyinsider-trading/16/36/337990
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