SEBI Imposes Rs1 Lakh Penalty on Ex-Infosys Employee for Insider Trading

Market regulator Securities and Exchange Board of India (SEBI) has imposed a fine of Rs 1 lakh on a former Infosys employee for breaching the model code of conduct in a matter related to Infosys shares. The individual, Prateek Sarawgi, worked as Associate Director (Business Finance) at Infosys during the investigation period.

SEBI had conducted an investigation for the period of December 16, 2016 through January 15, 2017 into Infosys’ certificate to determine whether market standards, including the Prohibition of Insider Trading (ITP) Regulations, had been violated. .

It was observed that Prateek Sarawgi was Associate Director (Commercial Finance) at Infosys during the investigation period. Infosys had announced its financial results for the quarter ended December 31, 2016 on January 13, 2017.

Prateek was in possession of sensitive unpublished price information (UPSI) related to Infosys results and traded the certificates during the UPSI period, in violation of market norms.

The SEBI order said Sarawgi was a named person of the company when he traded those shares.

Prateek, while in possession of UPSI regarding Infosys’ quarter ending (QE) results in December 2016, purchased 100 shares of Infosys on January 12, 2017 and bought and sold 400 shares and 75 shares from Infosys on January 13, 2017. It is further observed that Prateek’s first order on January 13, 2017 was placed at 09:19 AM while Infosys’ result for QE December 2016 was announced on the exchanges between 09:04 AM and 09:18.

Prateek Sarawgi argued that the infraction, if any, is unintentional and technical, therefore, no penalty should be levied on the penalty. He also argued that typically an insider will buy the stock before a positive UPSI and sell immediately when the UPSI goes public. After UPSI went public on January 13, 2017 between 9:04 a.m. and 9:18 a.m., instead of selling shares immediately, it additionally bought 400 shares and sold 75 shares.

In his 48-page order, adjudicating officer Prasanta Mahapatra said: “At the outset, I do not consider the breach of CoC Clause 4 mandated by the PIT Rules to be a technical or petty breach. Closing the trading window acts as a mechanism to prevent designated persons from trading who may be in possession of UPSI, thus, without any stretch of the imagination, trading during this period may be considered a technical breach”.

“According to the information provided by the company, the trading window was closed from December 16, 2016 to January 15, 2017 with respect to the financial result of the QE of December 2016. Thus, it was observed that the notice had traded the scrip from Infosys during the trading window was closed,” according to the order.

Mr. Sarawgi was part of the presentation team and was responsible for making quarterly presentations for the Audit Committee and Board of Directors. The market regulator also observed that the presentation contained revenue and cost information, which proves that he was an insider who was privy to sensitive unpublished price information.

Prateek Sarawgi, being a Designated Person of Infosys, made a profit by executing the trades when the company’s trading window was closed.

In addition, Prateek Sarawgi, as Infosys Designated Person, by trading the Infosys scrip when the trading window was closed also violated the Standard Code of Conduct for Listed Companies under the PIT Rules.

Garland K. Long