SAT sets aside SEBI order on Alchemy founder Lashit Sanghvi-Rakesh Jhunjhunwala insider trading case

SAT sets aside SEBI order on Alchemy founder Lashit Sanghvi-Rakesh Jhunjhunwala insider trading case

The Securities Appellate Tribunal (SAT) has set aside an order by the Securities and Exchange Board of India (SEBI) that barred Alchemy founder Lashit Sanghvi and his wife from the securities markets for allegedly trading in the shares of Aptech basis inside information from late Rakesh Jhunjhunwala.

A SEBI probe had found that Sanghvi spoke to the late Jhunjhunwala – who was on the board of Aptech -- on phone and then traded in the shares before a material information regarding the company venturing into pre-school segment was made public.

“We find no evidence in this regard and preponderance of probabilities also do not indicate that appellants had access to UPSI,” stated the SAT order.

UPSI refers to Unpublished Price Sensitive Information and trading on the basis of such information is a violation of SEBI’s insider trading regulations.

The roots of the matter go back to September 7, 2016 when Aptech made an announcement titled “Aptech forays into pre-school segment”. While the company did not classify the information as UPSI, the capital market watchdog was of the view that it was a price sensitive information.

SEBI further was of the view that the UPSI period came into existence on March 14, 2016 – the day Aptech signed an NDA in this matter -- and lasted till September 7, 2016.

Interestingly, the SEBI probe revealed that Sanghvi spoke to Jhunjhunwala on August 16, 2016 and thereafter he, along with his wife, purchased 50,000 shares of Aptech on August 19, 2016, and 75,000 shares on September 7, 2016.

This, according to SEBI, was allegedly a case of trading based on insider information and hence a regulatory violation. SEBI had barred the couple from accessing the securities markets for two years and had also ordered them to disgorge the alleged ill-gotten gains.

The tribunal, however, ruled that just a phone call could not be ground for proving that trades were done based on inside information especially when the Sanghvi couple were existing shareholders in Aptech and also held on to the shares for seven years after buying the additional shares in August and September 2016.

Incidentally, Jhunjhunwala, who along with Sanghvi founded Alchemy Capital Management, was also part of the SEBI probe though the late investor opted to settle the matter through SEBI’s Settlement Scheme.