The Securities and Exchange Board of India (SEBI) has accused current and former executives at major consulting firms EY and PwC of breaching insider trading rules in connection with Yes Bank's 2022 share sale. The regulatory action, detailed in a November notice reviewed by Reuters, also implicates executives from private equity firms Carlyle Group and Advent International for sharing unpublished price sensitive information.

Investigation Details

SEBI's investigation focused on suspicious movements in Yes Bank's shares ahead of a July 2022 share offering. During this transaction, Carlyle and Advent acquired a combined 10% stake for $1.1 billion. The bank's shares opened 6% higher the day after the deal was announced on July 29, 2022.

The regulator alleges that two executives at PwC and EY, along with five family members and friends, made unlawful gains by trading in Yes Bank shares prior to the public announcement. Most of the accused individuals continue to serve at their respective firms.

Scope of Alleged Violations

The show cause notice identifies violations across multiple categories:

Compliance Failures at Consulting Firms

SEBI's notice highlights significant compliance deficiencies at both consulting firms. Ahead of the share offering, Advent hired EY for tax advisory services and feedback on Yes Bank's management, while EY Merchant Banking Services was separately engaged by Yes Bank for valuation work. Simultaneously, PwC was retained by both Carlyle and Advent for tax planning and due diligence services.

EY's Compliance Issues

The regulator found that EY failed to place Yes Bank on a sufficiently broad "restricted list" - a roster of companies whose shares firm executives are prohibited from trading. While staff directly involved in the transaction faced trading restrictions, others with potential access to sensitive information did not, violating requirements for pre-clearance before trading.

SEBI has specifically asked Rajiv Memani, EY India's chairman and CEO, and the firm's chief operating officer to explain why penalties should not be imposed. The regulator noted that EY's internal trading policy stated: "No restriction was ever imposed on trading or investing in listed companies with which EY was engaged for advisory, consulting, valuation, investment banking or corporate finance services (other than audit)."

PwC's Regulatory Shortcomings

In PwC's case, SEBI determined that the firm lacked a "restricted stock list" for advisory and consulting clients, representing a fundamental gap in compliance infrastructure required under Indian securities regulations.

Regulatory Context and Next Steps

This show cause notice represents SEBI's initial step following completion of its investigation. The accused individuals and their companies are currently preparing responses to address the allegations. If the charges are upheld, they could face monetary penalties or trading restrictions under Indian securities regulations.

The case marks a rare instance where senior executives at global consulting and private equity firms face insider trading accusations related to a capital raising transaction. This regulatory action occurs amid increased capital raising activity by Indian companies and SEBI's intensified crackdown on market manipulation and insider trading violations in recent years.

The Securities and Exchange Board of India (SEBI) has taken disciplinary action against an investment adviser for serious regulatory violations, highlighting the regulator's continued focus on compliance enforcement in the advisory space.

SEBI's Enforcement Action

SEBI issued a 16-page order reprimanding Winway Research proprietor Ankur Jain for multiple breaches of Investment Advisers regulations. The regulator directed Jain to exercise greater diligence and care in his dealings as an Investment Adviser following the investigation.

Key Violations Identified

The regulatory examination revealed several serious compliance failures:

Investigation Timeline

The enforcement action stems from complaints filed against Jain on the SCORES portal. SEBI conducted a thorough examination following an enquiry report submitted to the regulator on November 18, 2024. The investigation focused on verifying whether applicable regulatory compliances were being followed by the accused adviser.

Defence Arguments Rejected

Jain mounted a comprehensive defense against the allegations, presenting several arguments to SEBI:

Fund Routing Defense: Jain claimed his firm maintains a clear policy against accepting client fees in third-party bank accounts, as stated in agreements, invoices, and website disclosures. He attributed the violations to unauthorized activities by former employees who allegedly misused company credentials without the firm's knowledge.

Fee Structure Clarification: Regarding overlapping fee charges, Jain argued that the allegations resulted from misunderstanding the pre-2020 invoicing system. He explained that combined bills were raised for multiple services, and clients subscribing to service combinations were not actually charged for overlapping periods.

Technical Failures: On call record maintenance issues, Jain contended that the firm made reasonable efforts to maintain and provide recordings as required, but certain data became unavailable due to technical failures beyond his control.

Regulatory Stance

Despite Jain's detailed explanations, SEBI rejected all defense arguments presented. The regulator maintained its position on the violations and proceeded with the disciplinary action. This decision reinforces SEBI's strict approach to investment adviser compliance and its expectation that principals remain accountable for their firms' operations.

The case underscores the importance of robust compliance systems and proper oversight of employee activities in the investment advisory business, as regulatory accountability ultimately rests with the registered adviser.