Summary of this article
Sebi has accused PwC and EY executives of breaching insider trading rules
Executives of the firms allegedly used privileged information to trade ahead of the YES Bank 2022 share sale
The Securities and Exchange Board of India (Sebi) has accused executives of PwC and EY of breaching insider trading rules in connection with a 2022 share sale by YES Bank, according to a Reuters report. The accusation involves current and former executives at the India units of two of the Big Four global accounting firms, among others, a regulatory notice by Sebi viewed by the agency showed.
Sebi also issued a notice to US private equity firms Carlyle Group and Advent International executives for sharing price-sensitive information that was unpublished, related to the share sale of the bank. This was in violation of India’s rules on insider trading, the Sebi notice said.
Sebi issued the notice in November. It alleges that two executives at PwC and EY, along with five other family members and friends of theirs, made unlawful gains by trading in shares of YES Bank with the price-sensitive information ahead of the share offering in 2022.
The notice accuses 19 individuals of insider trading, out of which seven traded on the basis of the sensitive information and four of sharing that information. Eight PwC and EY executives have been accused of following weak compliance processes. Both EY and PwC executives were found to have breached confidentiality norms, which allowed individuals to trade in the Bank’s shares ahead of the share sale.
Most of the accused individuals in the notice still serve at their respective firms. The notice showed that Indian executives of the firms shared unpublished and price-sensitive information with others. This enabled them to trade on the information. Sebi also accused a former board member at YES Bank of sharing price-sensitive information, which enabled others to trade ahead of the stake sale.
Sebi’s notice was followed by an investigation into the trading of YES Bank’s shares before the share offering in July 2022. This revealed that Carlyle and Advent cumulatively bought around 10 per cent stake for $1.1 billion. A day after the deal was announced on July 29, 2022, the share of YES Bank opened 6 per cent higher.
Sebi said that EY’s internal trading policy did not comply with Sebi regulations and asked for reasoning from Rajiv Memani, EY India's chairman and CEO, and the firm’s chief operating officer on why penalties should not be imposed.
"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 was reported as saying.
Sebi also said that in the case of PwC, a “restricted stock list” was not there as an advisory and consulting service for clients. Sebi pointed towards gaps in PwC’s internal protocols, which required disclosures by staff to only report when they buy shares of a company for the first time and when they have sold them. This, Sebi said, allowed subsequent trades to remain unreported, as was the case with YES Bank.
Sebi also asked PwC's Chief Industries Officer in India, Arnab Basu, and two former executives to respond to the notice for failing to implement an effective and adequate framework for code-of-conduct at the firm.
The accused and their respective firms are in the process of drafting their responses to Sebi, the agency reported. Sebi’s show cause notice is the first step after a probe is completed, in which the regulator seeks responses from the individuals. If the responses of the individuals or firms are not deemed satisfactory, they could face monetary penalties or restrictions in accordance with Sebi regulations.
