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WHISTLEBLOWER
CORPORATE LAW CIA 3
CONTENTS:
Meaning and Basic Concept of Insider Trading
Insider Trading in India
Penalties for Insider Trading
Case Study on Insider Trading
Types of Whistleblowing
Safeguards and Reach for Whistleblower
Legal Provisions
Case study on Whistleblowing
Meaning and Concept of Insider Trading
Meaning: The practice of purchasing or selling a publicly-traded
company’s securities while in possession of material information
that is not yet public information.
Material Information: Information resulting in a substantial
impact on the decision of an investor.
Non- Public Information: We mean that the information is not
legally out in the public domain.
Examples:
o CEO divulges important information about
the acquisition of his company.
o A government employee acts upon his knowledge about a
new regulation to be passed.
Insider Trading in India
It is prohibited by Regulation 3 of SEBI
Insider Trading was framed under Sec 11 of SEBI Act,
2011
Aim : To ensure that no one is gained by insider trading
Information available to all
Prohibits companies from dealing in securities if it has
unpublished information of another or associate company
Feb, 2002 –Rules tightened
a. Temporary insiders b. Relatives of connected person
SEBI and Insider Trading
Submission of Communication
Setting up enquiry
committee report to SEBI of findings to
within 1 month insiders
Appointment of Appeal in
auditors for Securities
•Notice to insiders
inspection of Appellate
books Tribunal
Penalties for Insider Trading
No separate penalties have been prescribed under the Regulations
Reference is made however to the penalty provisions under the
SEBI(Prohibition of Insider Trading) Regulation, 1992
It states that the person found guilty would be given:
Imprisonment up to 10 years
Fine + Imprisonment
Raj Rajratnam
• Board member of
IIT & MBA corporations like American
Goldman Sachs,
from Harvard Procter and Gamble • The former
Business and American hedge fund
School Airlines. manager and
• Advisor to non- founder of the
profits such as the Galleon Group,
• First foreign- Bill & Melinda a New York-
born MD of Gates Foundation based hedge
McKinsey and and The Global fund
Company Fund to Fight
AIDS, management
Tuberculosis and firm.
Malaria
FACTS
On September 23, 2008, Warren Buffet agreed to pay $5 billion for preferred
shares of Goldman Sachs.
This information was not announced until 6 p.m., after the NYSE closed on that
day.
Before the announcement, Raj Rajaratnam bought 175,000 shares of Goldman
Sachs.
The next day, by which time the infusion was public knowledge, Rajaratnam sold
his shares, for a profit of $900,000.
In the same period of time financial stocks as a whole fell.
Again, on 23 October he called and informed that Goldman Sachs is going to
issue its reports of negative earnings
Sold all his shares and saved 3.6 million dollars.
In JAN 29,2009 Rajaratnam knew about the release of earnings of P&G thereby
gaining $5,70,000
How was he proven Guilty?
The Companies
Legal Provisions
Act, 2013
Securities and
Exchange Board
Of India
Whistle blowers
Whistle blowers
Protection
Protection Act,
(Amendment)
2014
Act, 2015
The Companies Act, 2013
According to Section 177(9), every listed company or such class or classes of
companies, as may be prescribed shall establish a Vigil Mechanism for directors
and employees to report genuine concerns in such manner as may be prescribed.
• Adrian suspected that some employees of the mill were being paid to steal top grade paper,
which was then concealed amongst waste paper in skips that were collected daily by a waste
paper company.
• When the company delivered the waste to Adrian’s firm, the paper was also sold on for cash,
at a fraction of the market cost.
• He feared that if he spoke out, not only would he lose his job, but his life would be made
intolerable and that the perpetrators were influential in his firm and had good contacts with
the local police.
• Having obtained assurances on his behalf, the company’s investigators were put in touch
with Adrian. He was able to show them how the fraud had been concealed in the paperwork.
• With this information the company realised that the fraud had cost it some £3 million. The
police were called in and arrests were made.