INVESTIGATIONS: The Securities and Exchange Board of India (SEBI) have been carrying out a series of raids; and (below) chairman Ajay Tyagi


A SERIES of raids by India’s market regula­tor, investigating whether corporate an­nouncements were prematurely leaked by market participants in social media chat­rooms, were the largest it has conducted.  

Despite the scale of the action, the Secu­rities and Exchange Board of India (SEBI) will likely face several tough legal challeng­es in any prosecutions, according to four lawyers, including two former officials of the regulator.  

Dozens of SEBI officials raided offices and homes of brokers on December 22, seizing mobile phones and laptops, one regulatory source said. As many as 30 bro­kers were targeted in the action, according to local media.  

SEBI has broad search-and-seizure pow­ers that enable it to seize “books, registers, other documents” and records of anyone associated with securities markets, accord­ing to the regulations laid out in the official act that governs the regulator’s activity.  

Those powers would likely allow the reg­ulator to withstand in court any challenge to the seizure of electronic gadgets, the lawyers interviewed said.  

But whether SEBI has legal rights to get into individual social media accounts does not appear to have been established, the lawyers said. They said they were not aware of any explicit law that gives SEBI power to access social media accounts or compel us­ers to provide passwords.  

That would mean the regulator would have to make a case that such accounts should be considered “books, registers, other documents” and records, they said.  

SEBI did not respond to emailed requests for comment.  

A senior official at SEBI expressed confi­dence that the regulator would be able to successfully prosecute any cases that came out of the investigation.  

“We have enough powers to proceed,” the official, who requested anonymity, said. SEBI was “testing if the powers given to us can stand the scrutiny of law. If not, we will again ask for amendment to the regulations and laws. We will strengthen it.”  

SEBI’s chairman, Ajay Tyagi, at a press con­ference on December 21, said pursuing sus­pected illegal activity taking place on social media was new territory for the regulator.  

“Precedence, of course, there isn’t,” he said. But market participants “cannot hide behind technology”, he said.  

The lawyers said defendants would likely counter efforts by SEBI to access their social media accounts on privacy grounds. Reu­ters was unable to reach lawyers represent­ing brokers targeted in the raids.  

The SEBI investigation was triggered last month after Reuters reported at least 12 in­stances of messages that predicted results and other financial metrics about companies had circulated in private WhatsApp groups.  

On December 20, SEBI ordered Axis Bank (AXBK.NS), which was among the 12 companies mentioned in the Reuters story, to conduct an internal investigation into a suspected leak of financial information and to strengthen its handling of such data, as part of the investigation.  

Under India’s insider trading laws, it is illegal to circulate “unpublished price sen­sitive information”, which is defined as “any information” that is not “generally availa­ble” and that could have a market impact.  

The lawyers said that SEBI would need to conclusively prove that any messages post­ed by those under investigation qualified as constituting “unpublished price sensitive information.”  

Individuals could make the case that in­formation was “generally available” if they had merely taken it from other WhatsApp groups, for example, and posted it else­where, or cite it as general market specula­tion, they said. (Reuters)