Top execs rush to settle insider trading cases under Sebi scheme

Mumbai: Top officials of listed companies facing the glare of the Securities and Exchange Board of India (Sebi) for alleged insider trading violations are getting a reprieve thanks to the regulator’s new settlement scheme. In the last few months, Sebi has settled at least half-a-dozen insider trading cases through the consent route, through which an accused can settle any ongoing case with Sebi by paying up without accepting or denying guilt.Some senior employees of companies such as Diageo, Titan, Divi’s Laboratories, NIIT and JM Financial have settled their insider trading cases via this mechanism, data showed.Until last year, serious market offences like insider trading or front running were not allowed to be settled under the consent mechanism. However, in 2019 Sebi tweaked the rules to allow even such serious violations to be settled.“The scheme ensures that the regulator concentrates on larger, systemic issues having a market-wide impact while at the same time providing an alternate mechanism for dealing with minor violations of securities law,” said Anil Choudhary, partner, Finsec Law Advisors. “Under the new norms, Sebi has also increased the settlement fees which ensures that there is sufficient deterrent for market participants from violating securities laws.”The accused who opts for a settlement with Sebi will have to cough up four to five times the fine he would have to pay in a regular adjudication process. While going through a regular route may cost less, there is a chance accused may be pronounced guilty. Companies fear such adverse orders will impact the reputation of the company and its compliance practices. Hence, they prefer a settlement route. The regulator’s decision to use the consent mechanism more liberally is aimed at ensuring that it spends its investigation and legal resources on important cases, said legal experts.Every case cannot be settled with Sebi. Companies or individuals wanting to settle their offences are required to put in an application to Sebi which will be examined by a so-called ‘High Powered Advisory Committee’ which comprises former judges and senior regulatory officials. The committee takes a call on whether to settle or to continue legal proceedings. Factors including the nature of violation and compliance track record of the accused are considered.79553993“The new settlement mechanism of Sebi is a welcome measure, particularly in regard to cases involving technical breaches and unintentional violations which can be amicably settled without having to go for long-drawn litigation,” said Zerick Dastur, founder, Zerick Dastur Advocates and Solicitors.Technical breaches are those incidents wherein a company or a person has violated a rule unwittingly. “Even under the new norms, there can still be no settlement in cases involving massive frauds where investors have lost money,” Dastur adds.Sebi introduced the consent mechanism for the first time in 2007. The original regulations too permitted any type of market violations to be settled via consent.

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