The Whole Time Member, SEBI recently issued an order in relation to the violation of the provisions under the erstwhile SEBI (Prohibition of Insider Trading) Regulations, 1992. Pursuant to its investigations, SEBI observed that certain insiders traded in the scrip of the company while in possession of unpublished price sensitive information regarding the slump sale of the software division and declaration of interim dividend. SEBI observed that 15 individuals had violated the provisions under the PIT Regulations, 1992 and ordered impounding of the alleged gains made by such persons.
What is interesting in this matter is that SEBI has, for the first time, used Facebook accounts as evidence for insider trading. The WTM held that a certain person was an insider based on various factors, including that he was connected to a certain other person “through mutual friends on Facebook”. While SEBI has been examining social media accounts of suspected persons during its investigation, it had until now, not actually presented it as evidence.
Social media accounts, by their very nature and usage, cannot provide strong, cogent and conclusive evidence, especially as regards establishing a connection between suspected individuals indulging in an insider trading case. Under the PIT Regulations, 1992 a connected person was one who held a position involving business or professional relationship with a company and who may reasonably have been expected to have access to UPSI in relation to that company. Merely befriending a company’s official or having common friends with such official does not satisfy the aforesaid requirements. Such connectedness over social media does not imply that a person can reasonably be expected to have access to UPSI.