WTM/KMA/ISD/167/11/2009
SECURITIES AND EXCHANGE BOARD OF INDIA
CEASE AND DESIST ORDER AGAINST DR.
NALAMOTHU VENKATA KRISHNA UNDER SECTION 11D READ WITH SECTION 19 OF SECURITIES
AND EXCHANGE BOARD OF INDIA ACT, 1992 IN THE MATTER OF SOLICITING INSIDER
INFORMATION.
1.
Securities and Exchange Board of India (hereinafter referred to as SEBI) has
noticed an online offer made by Dr. Nalamothu Venkata Krishna (hereinafter
referred to as Dr. Krishna) in his blog “stockmarketguide.in” (http://www.stockmarketguide.in/2009/03/bumber-offers-from-stock-market-guide.html ) on March 7, 2009
soliciting unpublished price sensitive insider information in return for a
share in the profits between Rs.10,000 & Rs. 1 lakh.
2.
The print out of the online offer is placed at
(Annexure A). The material portion of the offer is its solicitation from the people
who have access to insider information on corporate news like stake sale, mergers,
acquisitions or any significant news or events. It invited persons who may have
such insider information to mail the information to mail id of Dr.Krishna (dr.krishna@gmail.com).
3.
Dr. Krishna in his blog further offered that
the informants would get money according to the returns his subscribers would
get. Dr.Krishna further promises to pay
the money to the informants in proportion to returns made by his subscribers. The prospective informants were offered to be paid Rs 10,000 for inside
news that will fetch 10-20% returns to his subscribers. Prospective informants
were offered to be paid Rs 25,000, Rs 40,000, Rs 60,000 and Rs 1 lakh if his
subscribers reap return of 20-30%, 30-50%, 50-70%, more than 70% respectively
on his investment, for parting with insider information. He also offered to
increase the payments to the informants once he gets more number of
subscribers. He offered to pay Rs. 5 lakh if 100% sure inside news is provided
of a major company. The said payments were offered even if his subscribers have
not used the information.
4.
Under the circumstances, the following issues
arise for consideration.
(i)
Whether the
information which Dr. Krishna sought in his blog amounts to unpublished
price sensitive information which has the potential to generate unjust profits
for Dr. Krishna and his subscribers to the detriment of public at large?
(ii)
Whether the blog induces those in possession
of the insider information to part with such information?
(iii)
Whether the blog encourages persons (who are
not insiders) to solicit, pass on or deal on such insider information.
(iv)
If so, whether Dr Krishna is liable to be
proceeded against under the SEBI Act, 1992 and the Regulations made thereunder?
5.
It is noticed that Dr Krishna through his blog
had sought unpublished price sensitive information, like those relating to
stake sale, mergers, acquisitions or any significant news or events from the
people who have access to insider information and promised to reward the person who parted with such insider information by sharing
profits with them. In this regard Regulation
2(ha) of Securities and Exchange Board of India (Prohibition
of Insider Trading) Regulations, 1992. (hereinafter referred to as Insider
Trading Regulations) may be referred to
which reads as follows:
[(ha) “price sensitive
information” means any information which relates directly or indirectly to a
company and which if published is likely to materially affect the price of
securities of company.
Explanation.—the following
shall be deemed to be price sensitive information:—
….
(v) amalgamation,
mergers or takeovers;
(vi) disposal of the whole or substantial part of the undertaking; and
(vii)
significant changes in policies, plans or
operations of the company;]
6.
From the above it is clear that Dr. Krishna
has solicited news relating to stake sale, mergers, acquisitions or any
significant news or events relating to companies. Such unpublished price sensitive information from insiders which is not in public domain
may be used to derive unjust profits to the detriment of general public.
7.
Dr. Krishna through his blog was clearly
inducing the insiders to part with the above price sensitive information to
make unjust profits. It is observed that the online offer was made to persons
who may be in possession of unpublished price sensitive information to disclose
such information and the person would be suitably rewarded as stated in the
online offer.
8.
It is significant that the offer is open not
only to people who have access to inside information but also to allure his subscribers to obtain the said insider information through
his blog to make illegal gains from insider trading.
9.
From the foregoing analysis, it prima-facie,
appears that Dr. Krishna through his blog is inducing persons who may be in
possession of unpublished price
sensitive information for a return of share in profits. Since trading in
securities based on unpublished price sensitive information which is not in
public domain would jeopardize the interest of investors and integrity of the
market, a situation has arisen that warrants immediate regulatory interference
to protect the interest of investors by restraining such activities which is in
violation of SEBI (Prohibition of Insider Trading) Regulations, 1992. As a regulator, it is the statutory duty of
SEBI to take urgent and immediate steps to prevent Dr. Krishna from further
undertaking such activity and impair the integrity of the market. The general
public should also exercise utmost care and caution not to be misled by the
promises made in his blog.
ORDER:
DR.K.M. ABRAHAM
WHOLE TIME MEMBER
SECURITIES AND EXCHANGE BOARD OF INDIA
Place: Mumbai
Date: November 18 , 2009