Sebi has issued show cause notices to executives of PwC, EY, Carlyle and Advent over alleged insider trading linked to YES Bank’s 2022 share sale. The regulator has flagged misuse of unpublished price-sensitive information and serious compliance gaps within top advisory firms.
India’s market regulator, Securities and Exchange Board of India (Sebi), has accused senior executives from global accounting firms PwC and EY of violating insider trading rules in connection with a share sale by YES Bank in 2022, according to a report by Reuters.
As per a regulatory notice issued by Sebi and accessed by the news agency, the allegations involve current and former executives working at the Indian arms of two of the Big Four accounting firms, along with other individuals.
The regulator has also issued notices to executives of US-based private equity firms Carlyle Group and Advent International for allegedly sharing unpublished and price-sensitive information related to the YES Bank share sale, in violation of India’s insider trading rules.
Sebi issued the show cause notice in November, alleging that two executives from PwC and EY, along with five of their family members and friends, made unlawful gains by trading in YES Bank shares using confidential price-sensitive information before the public share offering in 2022.
According to the notice, a total of 19 individuals have been accused of insider trading. Out of these, seven are alleged to have traded based on confidential information, while four are accused of sharing such information.
Eight executives from PwC and EY have also been accused of following weak internal compliance processes.
The regulator stated that executives from both firms breached confidentiality norms, which enabled certain individuals to trade in YES Bank shares before the share sale became public. Most of the accused individuals named in the notice are still employed with their respective firms.
Sebi further alleged that Indian executives shared unpublished and price-sensitive information with others, allowing them to profit from trading ahead of the stake sale.
The notice also accused a former board member of YES Bank of sharing confidential information, which enabled others to trade before the transaction.
Sebi’s notice followed a detailed investigation into trading activity in YES Bank shares ahead of the July 2022 share offering.
The probe revealed that Carlyle Group and Advent International together acquired around a 10 per cent stake in the bank for approximately $1.1 billion. A day after the deal was announced on July 29, 2022, YES Bank’s share price opened nearly 6 per cent higher.
The regulator raised serious concerns about internal compliance failures at EY, stating that the firm’s internal trading policy did not meet Sebi’s regulatory standards. Sebi asked Rajiv Memani, EY India’s chairman and CEO, along with the firm’s chief operating officer, to explain why penalties should not be imposed on them.
Sebi was reported as saying,
“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),”
highlighting the absence of safeguards against insider trading.
In PwC’s case, Sebi observed that the firm did not maintain a “restricted stock list” for advisory and consulting clients.
The regulator pointed out major gaps in PwC’s internal protocols, which required employees to disclose only their first purchase of a company’s shares and their final sale. According to Sebi, this system allowed multiple subsequent trades to go unreported, as seen in the case of YES Bank.
Sebi has also sought responses from PwC’s Chief Industries Officer in India, Arnab Basu, along with two former executives, for allegedly failing to establish an effective and adequate framework for enforcing the firm’s code of conduct.
According to the Reuters report, the individuals and firms named in the notice are currently preparing their responses to Sebi. A show cause notice is the first formal step taken after a regulatory probe is completed, giving the accused parties an opportunity to explain their conduct.
If Sebi finds the responses unsatisfactory, the individuals and firms concerned may face financial penalties, trading restrictions, or other regulatory action under Sebi laws.
Key Laws Governing Insider Trading in India
The primary law dealing with insider trading in India is the Securities and Exchange Board of India Act, 1992. This Act gives Sebi the power to regulate the securities market and take action against unfair trading practices, including insider trading.
Under this Act, Sebi has framed detailed rules known as the SEBI (Prohibition of Insider Trading) Regulations, 2015. These regulations clearly define who an “insider” is, what qualifies as “unpublished price-sensitive information” (UPSI), and when trading in securities becomes illegal.
Regulation 2 of the Insider Trading Regulations defines UPSI as any information that is not publicly available and is likely to materially affect the price of a company’s shares. This includes information related to share issuances, financial results, mergers, acquisitions, changes in management, or major investments.
Regulation 3 strictly prohibits communication, sharing, or allowing access to UPSI, except for legitimate purposes, performance of duties, or legal obligations. Any person who shares such information without proper justification can be held liable even if they do not trade themselves.
Regulation 4 prohibits insiders from trading in securities while they are in possession of UPSI. Even if a trade is made through relatives, friends, or intermediaries, liability can still arise if the trade is linked to the insider.
Regulation 9 requires listed companies and intermediaries to put in place a strong code of conduct, internal controls, and compliance systems to prevent insider trading. Failure to maintain adequate safeguards can attract regulatory action, even if the firm itself did not directly trade.
Apart from the Insider Trading Regulations, insider trading is also treated as a fraudulent and unfair trade practice under the SEBI (Prohibition of Fraudulent and Unfair Trade Practices) Regulations, 2003, if the conduct involves deception, manipulation, or misuse of confidential information.
Section 12A of the SEBI Act, 1992 expressly prohibits the use of manipulative or deceptive devices in connection with trading in securities, including insider trading.
Penalties for insider trading are provided under Section 15G of the SEBI Act, 1992. A person found guilty can face penalties of up to ₹25 crore or three times the amount of profits made, whichever is higher. Sebi can also impose trading bans, debar individuals from the securities market, or issue directions restricting professional activities.
In serious cases, criminal liability may also arise under Section 24 of the SEBI Act, 1992, which provides for imprisonment and fines for willful violations of Sebi laws, though most insider trading cases are pursued through civil penalties.
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