Well Done SEBI in 2015 for the Sabero Organics Insider Trading in 2011 !

On May 31,2011,while the Iron was yet Hot, I had blogged extensively giving vivid details of the Blatant Insider Trading in Sabero Organics before the announcement that it was being acquired at Rs 160…The Price was just Rs 58 ! in mid May 2011 and flew in the second fortnight of May 2011 just prior to the the Takeover announcement

Coromandel International this morning ?..BSE and SEBI need to quickly investigate and Leading Newspapers need to quickly highlight

Tuesday, May 31st, 2011

Well Done SEBI in 2015 for the Sabero Organics Insider Trading in 2011 !

Finally SEBI nailed A Vellayan,the Chairman of Coromandel International (CI)  and others for their role in the blatant Insider Trading in Sabero Organics (SO) in  May 2011 before  CI announced they were acquiring SO at a price three times more than what it was quoted prior to aggressive buying before making the announcement…Here is their Order

It’s an Eight Page SEBI Order by Whole time Director Prashant Saran of SEBI

A Vellayan,Chairman of CI and EID Parry of the Murugappa Group has been accused too with Saran stating that unpublished price sensitive information (UPSI) must have been communicated by Mr Vellayan to his distant relative and accused A.R. Murugappan who is the father in law of accused V Karuppiah who in turn was a friend of chief accused Gopalkrishnan C who was funded Rs One Crore to buy Sabero Organic Shares by A R Murugappan

Group Spokesman said that in keeping with family values and tradition, A Vellayan has stepped aside as the Chairman of the Murugappa Group till this matter is resolved  and he will contest the SEBI Order.The Group states that SEBI’s observation in linking A Vellayan to the two who actually did the Insider Trades  is based on suspicion and is a far-fetched tenuous conjecture and the interim order does not prove the link conclusively

A few threads I have picked from SEBI’s Order  and my views on them  :

• SEBI has been reactive in this case….they needed to be proactive when this blatant game was being played out in May 2011 or immediately thereafter rather than await someone to lodge a formal complaint……what happens in many insider trading cases where no one complaints to SEBI ! ? The Order begins like this:

 1. SEBI on receipt of certain complaints alleging therein that the unpublished price sensitive information (hereinafter referred to as ‘UPSI’) pertaining to the acquisition of the shares of one Sabero Organic Gujarat Limited (hereinafter referred to as ‘Sabero’) by Coromandel International Limited (hereinafter referred to as ‘Coromandel’) was leaked to certain persons, who were acting in concert with the management of Sabero/ Coromandel, initiated a preliminary examination into the matter. Later, a detailed investigation was conducted by SEBI for the period of May 15, 2011 to June 15, 2011.

•  Just a paltry amount of Rs 2.15 crs being  impounding of unlawful gains + interest in the two  broking accounts with Nirmal Bank of Gopalakrishnan  C &  V Karuppiah ! when the Takeover Deal Size was Rs 452 crs and Insider Gains of over Rs 100 crs have been made by various Insiders !….here’s the relevant part of the Interim Measure in the Order

 14. In view of the foregoing, I, in exercise of the powers conferred upon me by virtue of Section 19 read with Sections 11(1), 11(4) and 11(B) of the SEBI Act, 1992, hereby direct to impound the unlawful gains of ` 1,92,07,206/- (alleged gain of `1,30,38,795 + interest of `61,68,411/-) made by Mr. Gopalakrishnan. C. and `23,43,219/- (alleged gain of `15,93,325/- + interest of `7,49,894.10/-) made by V. Karuppiah (HUF) (Karta: Mr. V. Karuppiah)] lying in the bank accounts of Mr. Gopalakrishnan. C. [PAN: AAIPG4168P], V. Karuppiah (HUF) (Karta: Mr. V. Karuppiah) [PAN: AAFHV4956H], Mr. A.R. Murugappan Page 8 of 8 [PAN: AAGPM9164P] and Mr. A. Vellayan [PAN: AACPV2231L], with immediate effect. If the funds are found to be insufficient to meet the figure of unlawful gains, as directed above, then the securities lying in the demat account of these persons shall be frozen to the extent of the remaining value.

• The above clause implies that unlawful gains lie in the bank accounts of even A Vellayan,the Chairman of the Murugappa Group who just resigned !….This is based on The Rs One Crore to and fro entries traced in the bank A/cs  between A R Murugappan & A Vellayan which they have explained as advance payment for property purchase and a return as the deal did not happen….These entries clearly make the Murugappa Group’s contention sound shallow and hollow in that SEBI’s observation  linking A Vellayan to the co accused is based only on suspicion and is  far fetched and tenuous….there clearly is a money link established    
•  There is no mention of any Jail Sentence !….However hopefully some more action will be taken by SEBI as implied in this clause in the Order and also their stating in the Order that this is an interim measure so that unlawful gains are not diverted by the parties accused in the order

15. This order is without prejudice to the right of SEBI to take any other action that may be initiated in accordance with law. Further, SEBI is directed to expedite the process of issuing show cause notice, if any, pursuant to the completion of investigation, preferably within three months.  

• If A Vellayan,Chairman of  Murugappa Group defense is that he did not communicate UPSI to the co accused then someone else in the Family must have…how else would Family,however distant and therefore would not be included in the definition of ‘Relative’ under current relevant Insider Tradings Law, actually go ahead and do the Insider Trades ! …A Vellayan as Chairman is paying the price for this
• SEBI Order states that both Gopalakrishnan C & V Karuppiah bought Sabero Organic shares only on NSE from May 23,2011 and sold them immediately the next month in June 2011….  post the Takeover Announcement on May 31,2011…..However the Insider Game had commenced much earlier as is evident from the Trading Pattern on BSE which I had included in my blog (linked above) of May 31,2011.I reproduce it below for making this point

 Clearly there were more and much bigger Insider Traders in Sabero Organics in May 2011 even before the accused persons in SEBI’s Order !

Is SEBI following up on them or have they simply got away because no one complained  to SEBI !?

If there is no strong and immediate deterrent and action the message that gets reinforced is that Insider Trading pays big time ! as  :

• Insider Traders can get away
• Those that get caught are penalised like capturing the ‘Paisa’ while letting the ‘Rupee’ get away !
• Years go by before a SEBI Order materialises and even then the Appeal Process to SAT and Supreme Court takes many more years 

The Media even in May and June 2011 never significantly highlighted the Insider Trading in Sabero Organics.Even today ,all the three leading pink papers merely make a brief mention of it on the front page but carry it in the inside pages

Those who want to read what really happened in Sabero Organics Share Price & Volume Trend in May 2011 and the scale of it that clearly indicated Insider Trading can go to my blogpost of May 31,2011 as also linked above at the start

You can’t let A Vellayan,Chairman of the Murugappa Group take the fall and pay the price for even all those bigger guys who got away !

Well done SEBI anyway ! Way To Go !….But Lots a Way to Go Yet !