India's Securities and Exchange Board has issued a show-cause notice to Bank of America Corp., alleging that the bank's employees improperly shared non-public information about a significant block trade in 2024. The regulatory action centers on accusations of information sharing between employees who were not directly involved in the transaction.

Regulatory Allegations and Response

The show-cause notice outlines SEBI's accusations and requests Bank of America's formal response to the allegations. According to sources familiar with the matter, the bank is currently preparing its response to the regulator's claims. Bank of America representatives declined to comment on the ongoing matter, while SEBI representatives did not immediately respond to requests for comment.

SEBI's allegations extend beyond the initial information sharing claims. The regulator also alleges that Bank of America provided incomplete information during the original investigation when SEBI first inquired about the matter. The notice was reportedly sent to the bank several months ago.

Block Trade Details

The allegations relate to a substantial block trade involving Aditya Birla Sun Life Asset Management Co., where Bank of America served as the broker. The transaction details are outlined below:

Block trades represent large, privately negotiated securities deals executed off public exchanges, typically between major investment firms. Brokers facilitate these transactions to prevent significant price movements in public markets that could result from high-volume orders. These trades are subsequently reported for transparency purposes.

Legal and Regulatory Context

Sharing non-public information ahead of public announcements enables some investors to profit from expected price movements, a practice that is illegal in India, the United States, and other major markets. The regulatory framework is designed to maintain market integrity and ensure fair trading practices for all participants.

Impact on Bank Operations

The allegations have had tangible effects on Bank of America's operations in India. Three dealmakers departed the company in 2024 amid internal investigations related to allegations of wrongdoing involving stock offerings. Following these departures, the bank has been actively working to rebuild its investment-banking team in the country.

As part of its restructuring efforts, Bank of America received approval to appoint Vikram Sahu as its chief executive officer for India, signaling the bank's commitment to maintaining its presence in the Indian market despite the ongoing regulatory challenges.

India's Securities and Exchange Board (SEBI) has accused Bank of America Corp of serious regulatory violations in connection with a $170 million block trade involving Aditya Birla Sun Life AMC shares. The allegations center on improper sharing of material non-public information and misleading regulatory investigators during the probe.

Investigation Findings and Allegations

SEBI issued a show cause notice to Bank of America alleging that the bank improperly circulated price-sensitive information related to the ABSL AMC share sale. According to the regulator's findings, members of the deal team shared confidential details with employees who were not directly involved in executing the transaction, violating established internal controls.

The investigation revealed multiple breaches of insider trading regulations, with SEBI stating that the bank's conduct demonstrated "failure to maintain Chinese walls with broking/research arms, impacting safekeeping of confidential information and internal controls."

Regulatory Violations and Information Sharing

SEBI's investigation found that information related to the ABSL AMC dealings was not handled on a "need-to-know" basis. The regulator discovered that at the deal team's request, multiple divisions within the bank reached out to investors and shared confidential details. Bank employees were sharing information between workers who were not directly involved in the deal, according to sources familiar with the matter.

The notice specifically cites the bank's interactions with three major investors during the period between the bank's appointment and the formal announcement:

Misleading Investigators Allegations

SEBI has additionally alleged that Bank of America provided incomplete information during the investigation when the regulator originally inquired about the matter. The regulator claims the bank initially told SEBI that its processes around the block trade were compliant but later revised its submission after an internal review.

The bank subsequently provided records showing that individuals outside the core deal team had interacted with investors about the transaction, contradicting its initial statements to regulators.

Internal Changes and Response

Bank of America is preparing its reply to the regulator's findings. The case initially came to light through a whistleblower complaint, which led to an internal bank investigation. As a result of the internal probe, three Bank of America investment bankers in India exited the firm during 2024.

The bank has been seeking to rebuild its investment-banking team in the country since then. The company received approval to appoint Vikram Sahu as its chief executive officer for India.

Legal and Regulatory Context

Sharing material non-public information ahead of a market announcement can allow select investors to benefit from anticipated price movements and is prohibited in India, the US, and other markets. Block trades are large, privately negotiated deals for securities, executed off public exchanges and usually between big investment firms to avoid moving prices in the public markets.

Legal experts view this case as primarily an internal controls failure rather than classic insider trading. "This case looks less like classic insider trading and more like an internal-controls failure, which can attract serious regulatory action," said Sumit Agrawal, Senior Partner at Regstreet Law.