Sebi alleges EY and PwC executives involved in insider trading, notice reveals

The Securities and Exchange Board of India (Sebi) has recently accused current and former executives at the local branches of PwC and EY, among others, of violating insider trading rules related to a share sale by Yes Bank in 2022. The regulatory notice indicates that Sebi has also accused executives at US private equity firms Carlyle Group and Advent International of sharing unpublished price-sensitive information about the deal, which is a clear breach of insider trading regulations. Despite requests for comments, Advent, Carlyle, EY, PwC, Yes Bank, and SEBI did not provide any response.

The notice, issued in November but not previously disclosed, alleges that two executives at PwC and EY, along with five family members and friends, made illicit profits by trading Yes Bank shares before its 2022 share offering. Most of the accused individuals are still affiliated with their respective companies. SEBI’s notice points out that executives of Carlyle, Advent, PwC, and EY in India exchanged confidential, price-sensitive information, enabling others to trade based on this information. Furthermore, a former board member of Yes Bank is accused of sharing sensitive information to facilitate trading.

The investigation leading to the notice was triggered by suspicious movements in Yes Bank’s shares prior to a share offering in July 2022, in which Carlyle and Advent acquired a 10% stake for $1.1 billion. The day after the deal was announced, Yes Bank’s shares saw a 6% increase in value. The accused parties and their companies are currently preparing responses to the allegations listed in Sebi’s notice. A show cause notice, as issued by Sebi, initiates the process of soliciting responses from those accused, following which fines or restrictions may be imposed if the accusations are substantiated, in accordance with Indian securities laws.

This incident stands out as a rare case where senior executives at global consulting and private equity firms have been accused of insider trading violations linked to a capital raising deal. The regulatory action reflects Sebi’s heightened efforts to curb market manipulation and insider trading, with a recent case involving Bank of America’s India unit also facing similar allegations. The notice named a total of 19 individuals implicated in insider trading violations, indicating breaches by seven individuals engaging in trades based on privileged information and four individuals sharing such information.

Sebi’s investigation revealed that both EY and PwC failed to uphold confidentiality rules, enabling unauthorized trading of Yes Bank shares ahead of the capital raise. Sebi’s scrutiny highlighted gaps in EY’s internal trading policy and the absence of a “restricted stock list” at PwC for advisory and consulting clients. The regulatory notice requires responses from key executives at EY and PwC, emphasizing the importance of compliance with internal policies and regulatory frameworks to prevent insider trading offenses in the financial market.