A report by global news agency, Reuters reported that market regulator SEBI had allegedly accused current and former executives at the local units of PwC and EY, along with executives linked to US private equity firms Carlyle Group and Advent International, of breaching insider trading rules related to a 2022 share sale by Yes Bank.
The Reuters report stated that the Securities and Exchange Board of India (SEBI) also allegedly accused executives at Carlyle and Advent of sharing unpublished price-sensitive information connected to the transaction, which allowed others to trade ahead of the deal, the notice said.
Financial Express could not independently verify this news development. EY and PwC have not responded to our requests for comment on the issue. There is no official announcement from SEBI.
2022 Yes Bank share sale case
The notice, issued in November and not previously reported, is not public. It alleges that two executives from PwC and EY, along with five family members and friends, made unlawful gains by trading Yes Bank shares before the bank’s 2022 share offering. Most of the individuals named in the notice continue to work at their respective firms, as per the Reuters report.
According to the Reuters report, SEBI also allegedly accused a former Yes Bank board member of sharing such information with people who then traded in the stock. The notice followed a SEBI investigation into movements in Yes Bank shares ahead of a July 2022 share offering, in which Carlyle and Advent bought a combined 10% stake for $1.1 billion. Shares of the lender opened about 6% higher the day after the deal was announced on July 29, 2022, Reuters reported.
The individuals and firms named in the notice are preparing their responses, according to sources quoted by Reuters. A show cause notice is the first step taken by SEBI after completing an investigation and seeks explanations from those accused. If the regulator upholds the allegations, the individuals and entities involved could face financial penalties or restrictions under Indian securities regulations, the report added.
The case is unusual because it involves senior executives at global consulting firms and large private equity firms in connection with a capital raising transaction. It also comes at a time when Indian companies have increased fundraising activity, drawing overseas capital amid rising geopolitical tensions, it further added.
Trading on unpublished information
Reuters states that the notice names 19 individuals in total. Seven are accused of trading based on unpublished price-sensitive information, while four are accused of sharing such information. SEBI also named eight PwC and EY executives for weak compliance processes at their firms.
Ahead of the share offering, Advent hired EY for tax advisory services and sought feedback on Yes Bank’s management. At the same time, EY Merchant Banking Services was engaged by Yes Bank to conduct valuation work, as per the report.
Separately, Carlyle and Advent hired PwC for tax planning and due diligence. SEBI said executives at both firms failed to maintain confidentiality, allowing some individuals to trade Yes Bank shares ahead of the capital raise, as per Reuters.
All eyes on what’s next
According to the notice, as reported by Reuters, EY failed to place Yes Bank on a sufficiently broad restricted list, which is meant to prevent staff from trading in shares of companies where they may have access to sensitive information. While employees directly involved in the transaction were restricted, others were not, despite the possibility that they could access such information.
SEBI said this violated rules requiring anyone with access to unpublished price sensitive information to obtain pre-clearance before trading.
The regulator has asked Rajiv Memani, EY India’s chairman and chief executive, along with the firm’s chief operating officer, to explain why penalties should not be imposed. SEBI said EY’s internal trading policy did not comply with regulations.
“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 said, as quoted by Reuters.
In PwC’s case, SEBI said the firm did not maintain a restricted stock list for advisory and consulting clients. The notice also said PwC’s internal rules required employees to disclose only their first purchase of a company’s shares and their eventual sale, which allowed subsequent trades to go unreported in the Yes Bank case, the report added.
PwC India Chief Industries Officer Arnab Basu and two former executives have been asked to respond for failing to implement an adequate code of conduct. Neither Memani nor Basu has been accused of personal wrongdoing. Both declined to comment through their firms’ spokespersons.