Bengaluru-based information technology companies Infosys Limited and Wipro Limited are famously known as cross-town rivals. Yet, sometimes, old friendships between their employees, reinforced by common greed -- help blur corporate boundaries, as this story illustrates.
Ramit Chaudhri, a former Infosys employee, and Keyur Maniar, a former Wipro man, conspired a little over a year ago to make some quick money, according to a recent order by the market regulator Securities and Exchange Board of India (Sebi)
Chaudhri worked in Wipro between March 2012 and December 2014 before moving to Infosys.
According to Sebi, Maniar gained Rs 2.61 crore by accessing insider information prior to the announcement of Infosys’s multi-year, $1.5 billion deal with Vanguard Investment Group Inc announced in July last year.
The money illegally gained may be a drop in the ocean given the size of the deal.
They couldn’t escape the law. On Monday, September 27, Sebi passed an order banning Chaudhri and Maniyar from trading on the stock exchanges.
Insider trading cases are not uncommon. What made this particular case intriguing was the involvement of two ex-employees of rival IT companies that often compete for the same projects.
Moneycontrol pieces together the investigation and how Sebi cracked the case.
How it began
It all started when the market regulator’s surveillance system sounded an alert on insider trading.
The system generated insider trading alerts on Infosys shares around the announcement of the deal with Vanguard on July 14, 2020, leading to an investigation by Sebi, the regulator said in its order.
There exist pre-determined parameters to generate alerts. These include abnormal fluctuations in share prices or volumes and variations in the orders or traded prices and quantities.
In this case, the regulator found abnormal trading activity when Infosys announced its deal with Vanguard, one of the largest won by the company. The 10-year deal was expected to generate significant revenue for the Indian company. After the announcement, the stock price went up by 3 percent.
Before an announcement is filed with the stock exchanges BSE and the National Stock Exchange of India (NSE), only the people involved in the deal, directly or indirectly, are privy to the information.
This information is called unpublished price sensitive information (UPSI) and using it for trading is punishable under Sebi’s Prohibition of Insider Trading Act.
Two dates were important here – June 25, 2020 and June 29, 2020 – for Sebi to reach the conclusion that this was a case of insider trading.
On June 25, 2020, an email was sent to a specific set of Infosys employees to start working with Vanguard once the announcement becomes official, which in this case, was communicated to the stock exchanges on July 14, 2020.
On June 29, 2020 a PowerPoint presentation titled “Go To Market Command Center” was shared with select Infosys employees with the details of the deals through an email, the Sebi order pointed out.
“The fact that such information was shared to a specific set of employees through PPT does not take away its character that this was not generally available information as it was not available to public..,” the order said.
To outsiders, it would be difficult to make out any link between Chaudhri and Maniar.
Chaudhri, a chartered accountant, worked across companies such as Goldman Sachs Group Inc, International Business Machines Corp, Wipro and Infosys before moving to WNS early this year.
He worked in Wipro between March 2012 and December 2014, after which he moved to Infosys, where he was solution design head for financial services.
Maniar, a graduate of the Indian Institute of Management, Ahmedabad, spent 14 years in Wipro and was senior vice president at the time of the alleged insider trading case.
The 49-page Sebi order suggests that Chaudhri and Maniar were acquainted during their shared time in Wipro.
Sebi looked at three key people who worked on the deal – Sanjay Nayak, strategic business practice head; solutions design head Muthukrishnan Nagarajan and Chaudhri, all of whom were privy to this information of the Vanguard deal based on call records and their involvement in the project based on the data shared by Infosys with Sebi.
As with other IT projects, the Vanguard deal too had contenders including Wipro, Tata Consultancy Services Limited and Accenture, according to a Times of India report.
While Infosys and Wipro were the final contenders, the former eventually won. Maniar, senior vice president of capital markets at Wipro, had been picked by Wipro to communicate with Vanguard.
On March 9, 2020, he informed senior management that Vanguard had decided not to go ahead with a deal with Wipro.
Through the entire process of negotiations between Infosys and Vanguard, from March to June 2020, Maniar and Chaudhri had been in touch, call records accessed by Sebi revealed. Chaudhri, who had information related to the final round of negotiations with Vanguard, could have passed it on to Maniar, the order said.
Trading for gain
Sebi found that there was a clear pattern in the buying and trading of Infosys shares by Maniar, which led to the prima facie evidence that it was a case of insider trading.
Records show that Maniar took exposure in call option contracts to buy around 670,000 Infosys shares between July 8 and July 14, 2020.
However the first order wasn’t placed until after the call between the duo on July 8, the Sebi order shows. Investors buy call options on the expectation that the value of the underlying security will rise.
Chaudhri spoke to Maniar for about 20 minutes from 10.54 AM till 11.16 AM on July 8, 2020. Seven minutes after the call, Maniar bought the first call option which offered an exposure to 1,200 Infosys shares, according to the Sebi report.
The order was executed at 11.32 AM on the same day. He took a long exposure to 15,600 shares of Infosys on July 8 alone.
Maniar slowly started accumulating options and futures of Infosys over the next seven days, taking exposure to as many as 360,000 shares on July 14, 2020, reaching 662,400 shares during the period. At that time, Infosys was trading at an average share price of Rs 783.
The price increased to Rs 825 per share after the announcement, when Maniar started squaring off the options and futures (in effect, offloading the shares), starting on July 15, 2020. About 330,000 shares were offloaded on July 15. About 310,000 shares were sold on July 16 and 18,000 on July 17, 2020 earning him Rs 2.61 crore.
There are a few other things to note here as well. Between July 13 and July 19, 2020, Maniar’s gross trades in the Infosys scrip (through options and futures) was worth Rs 4.31 crore. According to the order, in the previous weeks of 2020, the highest weekly gross trades made by Maniar was only Rs 47 lakh.
So clearly, Rs 4.31 crore of gross trades was an outlier. In addition, barring April, which had some “miniscule” activity, Maniar had never traded in the Infosys stock between January and June 2020.
So Sebi concluded that Maniar had access to information that could move the share price through Chaudhri and gained Rs 2.6 crore using the information.
“Thus preventive directions against them are essential to stop impending danger to investors that in future Ramit and Keyur through their personal, social and corporate network….might continue to engage in similar modus operandi by playing varying roles in other companies,” Sebi said in the order.
What happens to the men?
Wipro, in a statement, told Moneycontrol that as of September 28, Maniar was no longer a part of the company. Chaudhri had quit Infosys in April.
“On September 28, Infosys was informed of an interim ex-parte SEBI Order. In this Order, a former Infosys BPM employee and another third party, have been named in an ongoing insider trading investigation. The Company is not a party in this matter,” Infosys said in a statement to Moneycontrol.
The company will cooperate with Sebi on the matter, the statement said.
In the interim order, Sebi banned both the employees from trading in stock exchanges; their bank accounts have been seized. "Chaudhri and Maniar are restrained from buying, selling and dealing in securities, either directly or indirectly, in any manner whatsoever until further orders," the order said.
In addition, both of them were ordered to provide a full inventory of assets held in their name, including demat accounts, mutual funds and other information, in no later than five working days.
However, given that the order was based on material available on record, Chaudhri and Maniar can respond and file objections within 21 days of the order. "(They) may also indicate whether they desire to avail an opportunity of personal hearing..." the order said.