Are you a stock trader or investor and active on social media such as Facebook, WhatsApp and Instagram?

Then keep a close watch on your friends list and beware of what you are sharing and liking!

On April 16, the Securities and Exchange Board of India passed an order indicting three investors — Rupesh Kantilal Savla, V-Techweb India Pvt Ltd (VTPIL) and Sujay Ajitkumar Hamlai — in a case relating to Deep Industries. According to SEBI findings, Deep Industries, engaged in oil exploration and allied/other activities, was awarded three contracts (on July 17, 2015, August 18, 2015, and July 27, 2015) for hiring of mobile drilling rigs from ONGC over a period of several months.

However, the company had disclosed the information about these orders to the exchanges only on September 3 (for the first two orders) and on October 14 (for the third order), as the final and formal award of contracts involves various procedural steps that are usual in any tender process, especially in oil sector.

According to SEBI findings, considering the magnitude of the value of these three orders, the information relating to bagging of these orders by Deep Industries constituted price-sensitive information, which would affect the share price of the company, once published.

So, until the information was made public, company ‘insiders’ were barred from dealing in the shares.

Deep trouble

It was observed that Rupesh Savla, Managing Director and promoter of Deep Industries, had increased his stake in the company to 8.62 per cent (25.16 lakh shares) from 8 per cent ( or 23.37 lakh shares) during the period and thus became liable for punishment under SEBI (PIT) Regulations. The deemed profits — calculated based on his purchase price and the closing price on the date when the information was made public — has been ordered to be deposited along with interest at 12 per cent per annum in an escrow account.

Now, the question was whether VTPIL and Sujay Hamlai were insiders as per provisions of SEBI (PIT) Regulations, 2015.

According to SEBI findings, VTIPL, a Mumbai-based real estate company, is owned equally by Ajay Ajitkumar Hamlai and Sujay Ajitkumar Hamlai. VTIPL and Sujay Ajitkumar had traded in the scrip during the investigation period.

The directors of VTIPL were friends of Rupeshbhai and Sheetal Rupesh Savla (wife of Rupeshbhai Kantilal) on Facebook. Also, Radhika Hamlai (wife of Ajay Hamlai) was a friend of Rupeshbhai and Sheetal on Facebook.

Also, there were several photos posted by Sheetal Savla on Facebook that were ‘liked’ by Ajay Hamlai and Sujay Hamlai. Similarly, Rupeshbhai has ‘liked’ several photos posted by Ajay Hamlai, Sujay Hamlai and Radhika Hamlai. Sheetal Savla had also ‘liked’ the photos posted by Ajay Hamlai, Sujay Ajitkumar Hamlai and Radhika Hamlai.

Common broking house

Further, from KYC documents it was observed that one of the promoters of DIL, namely, Mita Manoj Savla, is registered with the trading member PhilipCapital (India), which is the same trading member through which Sujay Hamlai and VTIPL had traded in the stock during the period.

SEBI had said these actions were sufficient evidence to establish ‘connection’ between these parties and Deep Industries’ Managing Director for the purpose of insider trading regulations. Both have been ordered to deposit the profits allegedly made by them with penal interest.

Though further progress in this case and appeals, if any, may throw light on whether SEBI’s contentions are upheld, one should also appreciate the Securities and Exchange Board of India’s efforts going thus far to check the menace of insider trading.

There is also a lesson for investors or market players, to be careful of their associations, especially on social media.

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