'Close friend' privy to Poonawalla Group's Magma buy fined Rs 10 lakhs for insider trading

The monetary penalty was decided after taking into account earlier penalties imposed.

The Securities and Exchange Board of India on January 16 said it imposed a fine of Rs 10 lakh on Abhijit Pawar, who is identified as a close friend of the senior management of Poonawalla Fincorp, for violating insider trading regulations.

Pawar is said to have benefitted from trading on unpublished price-sensitive information (UPSI) between January 11, 2021, and February 10, 2021. The information had to do with Poonawalla Group buying a controlling stake in Magma Fincorp. Pawar has been identified as an insider based on his close friendship with the Adar Poonawalla of the Poonawalla Group.

Magma Fincorp is now Poonawalla Fincorp.

An order passed on January 16 by the Securities and Exchange Board of India (Sebi) said that "the facts of the case present a strong preponderance of probability leading to the inference that the Noticee (Abhijit Pawar) had provided UPSI to Shri Rakesh Bhojgadhiya, that he had facilitated Shri Bhojgadhiya’s insider trades by providing funds and that the said trades were entirely at the behest of the Noticee since he later received the illegal gains by way of investment in his company."

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The quantum of the monetary penalty was decided after taking into consideration the disgorgement of illegal gains of Rs 8.32 crores by Rakesh Bhojgadhiya and Rakesh Bhojgadhiya HUF, and the settlement amount of Rs 8 crores paid by them.

The order, explaining Pawar's insider status, quoted the show cause notice issued to Pawar: "The Noticee (Pawar), a close friend of Shri Adar Poonawalla of Poonawalla Group, was involved in the discussions about the proposed acquisition by Poonawalla Group in Magma and thus had access to and had the UPSI about the same. Accordingly, the Noticee was an insider in terms of Regulation 2(1)(n)(ii) of the PIT Regulations, 2015." This was one of the facts that was given in the show cause notice, which was directly or indirectly admitted to by Pawar, according to the order.

Bhojgadhiya, through Newgen, had received funds amounting to Rs.15 Crore from Pawar and his wife during the UPSI period and utilised the said funds for making payments to his brokers for purchasing shares of Magma during the UPSI Period, said the order.

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The order also noted that, for trading in the scrip of Magma during the UPSI period, Bhojgadhiya had opened his trading account with HDFC Securities, a day before fund transfers by Pawar. Also, Bhojgadhiya had not traded in any scrip in the last three years before he traded in Magma during the UPSI period.

Bhojgadhiya and his HUF earned a total profit of Rs.8.32 Crore by trading in the scrip of Magma on the basis of UPSI. The order added that, surprisingly, Bhojgadhiya not only returned the funds received from Pawar and his wife on May 11, 2021, Bhojgadhiya also transferred Rs. 8.6 Crore (which is close to the profits earned by him and his HUF) to a company owned by Pawar on the next day (May 12, 2021).

'Camouflage' company

Pawar claimed that the transfer of Rs.8.6 Crore by Bhojgadhiya to DCF BFR Consulting Pvt. Ltd. was for subscription to preference shares issued by the said company. However, the order stated, the details obtained from the MCA21 Portal show that this company had nil revenue and no profits during the FYs 2016-17 to 2020-21 (five FYs immediately preceding the fund transfer of Rs.8.60 Crore). The order added that, during the subsequent two fiscals, the revenue and profits were still negligible.

The order stated that it is clear that the company had no real business at the time of investment and that therefore it defies logic why anyone would invest this sum in such a company.

"Thus, the Noticee’s claim that the fund transfer of Rs.8.60 Crore from Shri Rakesh Bhojgadhiya to the Noticee’s company was for subscription of preference shares appears to be merely a ploy to camouflage the real nature of transactions, which was to receive the huge gains made out of trades using funds from the Noticee."