Sebi must act on insider trading

Tony John (Chartered Accountant) (6085 Points)

28 October 2012  

The sentencing of disgraced Wall Street bigwig Rajat Gupta to two years in a US prison for leaking confidential corporate information has again put the spotlight on the ineffectiveness of Indian rules in nailing those accused of insider trading.

The Indian capital market regulator, Sebi, has been attempting to crack down on insider trading for a while, but it has hardly met with any major success so far. The lack of stringent punishments for economic offences in India or the absence of adequate powers to combat these crimes has helped people accused of insider trading to either walk scot-free or get away by paying a small fine.

While the criminal proceeding can put an insider behind the bars, it requires proof beyond reasonable doubts, said Sandeep Parekh, founder, Finsec Law Advisors and former head of legal and enforcement wing at Sebi.

 The biggest hindrance for Sebi in booking people involved in insider trading is the inaccessibility of superior technology to gather evidence.

For instance, the market regulator has been seeking powers to have access to call records and it has sought permission to tap phones to strengthen its insider trading investigations, according to reports. Records of phone conversations between Rajat Gupta and hedge fund manager Raj Rajaratnam proved to be vital in the case against Gupta.

But, Sebi is yet to get permission in this regard and the matter is embroiled in technical issues, said sources. "Leave aside phone tapping. Sebi is only asking for powers to seek call data records, which is yet not available," said Sebi's former executive director JN Gupta, who is a managing director of proxy advisory firm Stakeholders Empowerment Services.

Source: The Economic Times