India’s market regulator has issued a notice accusing senior executives at EY, PwC and global private equity firms of leaking and trading on unpublished information ahead of Yes Bank’s $1.1 billion 2022 share sale
India’s capital markets regulator has accused senior executives at global consulting giants EY and PwC, along with officials linked to US private equity firms Carlyle Group and Advent International, of breaching insider trading rules in connection with Yes Bank’s $1.1 billion share sale in 2022, according to a regulatory notice reviewed by Reuters.
The Securities and Exchange Board of India (Sebi) has alleged that unpublished price sensitive information related to the Yes Bank capital raise was improperly shared and used for trading ahead of the transaction, enabling unlawful gains.
The regulatory action marks a rare instance in which senior executives at global consultants and private equity firms have been accused of insider trading violations linked to a capital raising deal.
The deal under scrutiny
The case centres on a July 2022 share offering by Yes Bank, in which Carlyle and Advent acquired a combined 10 per cent stake for about $1.1 billion. The transaction was a key milestone in the private sector lender’s turnaround following its near-collapse in 2020 and subsequent state-led rescue.
Sebi’s investigation focused on unusual trading patterns in Yes Bank shares ahead of the announcement of the deal. The bank’s stock opened around 6 per cent higher on July 29, 2022, the day after the capital raise was made public.
According to the regulator, sensitive information relating to the impending investment was shared among executives at Carlyle, Advent, EY and PwC, as well as with family members and friends, some of whom traded Yes Bank shares before the deal was announced.
Who Sebi has accused
The notice accuses a total of 19 individuals of violating insider trading regulations. Of these, seven allegedly traded on the basis of privileged information, while four are accused of sharing such information.
Sebi has also flagged eight executives at EY and PwC for what it described as weak internal compliance processes that failed to prevent the misuse of UPSI.
Among those named are two executives at EY and PwC, along with five of their relatives or close associates, who allegedly made unlawful gains by trading in Yes Bank shares ahead of the offering.
Most of the individuals named in the notice continue to serve in their respective organisations, according to Reuters.
Sebi has also accused a former Yes Bank board member of sharing price sensitive information that enabled others to trade in the bank’s shares.
Role of consultants and advisers
Ahead of the share sale, Advent had engaged EY for tax advisory services and sought feedback on Yes Bank’s management. Separately, EY Merchant Banking Services was appointed by Yes Bank to carry out valuation work related to the capital raise.
Around the same period, PwC was hired by Carlyle and Advent to provide tax planning and due diligence services. Sebi found that executives at both EY and PwC breached confidentiality norms, allowing information related to the deal to leak beyond the immediate transaction teams.
In EY’s case, the report said the firm failed to place Yes Bank on a sufficiently broad “restricted list”, an internal mechanism that bars employees from trading in the securities of clients where sensitive information may be available.
While staff directly involved in the transaction were restricted from trading, others with potential access to UPSI were not, the report said.
Sebi said in its notice that this violated a requirement that anyone with access to unpublished price sensitive information must obtain pre-clearance before trading.
Sebi has asked Rajiv Memani, EY India’s chairman and chief executive officer, as well as the firm’s chief operating officer, to explain why penalties should not be imposed. The regulator argued that EY’s internal trading policy did not comply with Indian securities regulations.
“No restriction was ever imposed on trading or investing in listed companies with which EY was engaged for advisory, consulting, valuation, investment banking or corporate finance services (other than audit),” Sebi said.
In PwC’s case, Sebi said the firm did not have a “restricted stock list” for advisory and consulting clients.
With inputs from agencies.
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