Rajat Gupta, former head of McKinsey, was sentenced to two years in prison and a fine of $5 million on insider trading charges in the US.
It leaves one pondering when was the last time a jail sentence was delivered against a corporate executive in India for insider trading. Why is the Indian media cribbing about a lenient verdict for Rajat Gupta, when we do not hear of a similar sentence being passed for executives in corporate India.
Our capital market watchdog, the Securities and Exchange Board of India only initiates insider trading enquiries and then debars individuals from trading in the markets.
Why do individuals get away with insider trading practices in India?
Recently, Vakrangee Software was in the news for insider trading charges levelled against the company's executives. However, market regulator Sebi dropped charges against Vakrangee Software and its eight executives, related to violations of insider trading norms.
In two orders, Sebi, exonerated Vakrangee Softwares (VSL) along with its eight executives from the charges, saying "there is no history of any irregularity/indulgence of any violation" by the these entities. According to the Economic Times, in March 1998, SEBI pulled up Hindustan Lever (now Hindustan Unilever) and its then five directors SM Datta, KB Dadiseth, R Gopalakrishnan, A Lahiri and MK Sharma for alleged insider trading. The case involved purchasing a sizeable chunk of Brooke Bond Lipton shares from UTI, prior to its public announcement related to the merger of the two outfits, which, according to Sebi, was price sensitive information. There were claims and counterclaims and according to the Economic Times, the case is still pending in Court.
Other famous cases involving former Wockhardt CFO, Samir Arora former Asia Pacific Head of Alliance, Dilip Pendse former MD of Tata Finance and others reveal a small penalty or the final verdict yet to be delivered.
None of the cases in India reveal a harsh punishment as that of Rajat Gupta. Clearly, it's a case of lenient laws and limited powers vested in the Securities and Exchange Board of India, that can more often be a cause for concern. It has and will result in individuals getting away with share manipulation and insider trading practices.
In the United States, insider trading cases against Gupta and his hedge fund friend Rajaratnam was proven with the help of telephone conversations and emails.
In India, SEBI still awaits powers, particularly with regards to wiretapping. Millions have been made by buying and selling stocks, based on being privy to sensitive information, particularly financial information of corporates. More recently, SEBI is probing insider trading in UB group companies, which rallied even before the company's tie-up with Diageo. Obviously, there were people within the company who may have known about the deal.
Unless, SEBI is vested with extensive powers to examine, manipulation and insider trading can get rampant. In the meantime, manipulators can walk their way happily to the bank.