Market regulator Securities and Exchange Board of India (SEBI) has barred Maneesh Kumar Jain (noticee 1) and SV Subha Rao (noticee 2) (former chief finance officer-CFO) of Jagsonpal Pharmaceuticals from the markets for one year. SEBI also imposed a fine of Rs25 lakh on them for indulging in insider trading in the scrip Jagsonpal Pharmaceuticals.
Apart from these, the regulator has also directed Mr Jain to disgorge Rs31.39 lakh along with the interest of 12%pa (per annum) from 22 February 2022 till the date of deposit of the amount by him.
In the order, Dr Anitha Anoop, chief general manager (CGM) of SEBI says, "I find that the unlawful gains made by Mr Jain by indulging in insider trading have been crystallised to be Rs31.39 lakh and appropriate direction to disgorge the said unlawful profits made by him along with penal interest are being issued. Further, I have noted the role played by Mr Jain and Mr Rao and the extent of their involvement, which has resulted in Mr Jain gaining unlawfully by indulging in the act of insider trading."
On 22 February 2022, Jagsonpal Pharmaceuticals announced an open offer for shares priced at Rs235 per share, amounting to a total consideration of Rs160.07 crore. This disclosure, made pre-market at 7:09am, resulted in a significant surge in the company's stock price. Jagsonpal Pharma's stock rose from its closing price of Rs205.40 on 21 February to Rs246.45, representing a 20% increase and reaching a new 52-week high.
The sharp price movement led SEBI to investigate whether the information constituted unpublished price sensitive information (UPSI).
SEBI investigation revealed that the UPSI period extended from 28 December 2021, when Jagsonpal Pharma signed a non-disclosure agreement with Convergent Finance LLP, until 21 February 2022, the day before the public announcement. During this period, Jagsonpal Pharma's stock price fluctuated significantly, rising from Rs160.30 on 24 December 2021 to Rs227.55 by 21 February 2022. These price movements pointed to the market's reaction to the information, suggesting the presence of UPSI.
Mr Rao, as a CFO, had access to this sensitive information and was involved in discussions surrounding the acquisition. His role in compiling event details and communicating with the other implicated individual, Mr Jain, were key to the investigation. Mr Jain, an active trader, purchased 90,000 shares of Jagsonpal Pharma on 21 February 2022, just one day after a lengthy phone conversation with Mr Rao on 20 February 2022. The investigation also uncovered call detail records (CDRs) and WhatsApp communications between Mr Jain and Mr Rao, further linking the two.
Mr Jain initially denied any connection with insiders at Jagsonpal Pharmaceuticals, claiming that his trades were based solely on his independent analysis of market trends and price patterns. However, SEBI's analysis of trading data revealed that Mr Jain's purchase of Jagsonpal Pharmaceuticals shares during the UPSI period was highly unusual. He bought 102,000 shares at an average price of Rs210.69, later selling them post-announcement at an average price of Rs241.46, making a profit of Rs31.39 lakh.
This sharp rise in trading activity, particularly in comparison to his trading history with other pharmaceutical stocks, led SEBI to conclude that Mr Jain acted on the insider information provided by Mr Rao.
While Mr Jain argued that the trades represented a small percentage of his overall trading activity, SEBI emphasised that even a single trade based on UPSI violates insider trading regulations.
SEBI also dismissed Mr Jain and Mr Rao's claims that the allegations were based on conjecture, pointing out the frequency of their communication, the timing of the trades and the clear profit-making pattern immediately after the acquisition's public disclosure.
The market regulator imposed a fine of Rs15 lakh on Mr Jain and Rs10 lakh on Mr Rao.
