Rare SEBI Action Targets Global Consulting and PE Executives Over Insider Trading

Market regulator SEBI has charged former and current officials at the local offices of PricewaterhouseCoopers (PwC) and Ernst & Young with violating business regulations in the purchase of Yes Bank shares in 2022. There are allegations that the officials from the local offices of US private equity firms Carlyle Group and Advent had access to unpublished price-sensitive information related to the deal.

In a notice issued in November, the Securities and Exchange Board of India (SEBI) stated that two officials from PwC and EY, and five family members and friends, made illegal profits by trading ahead of Yes Bank's 2022 share offering. Most of the accused are still employed by their respective companies. Indian executives from Carlyle, Advent, PwC, and EY shared unpublished price-sensitive information. A former Yes Bank board member is also accused of sharing price-sensitive information that others exploited. The regulator's notice follows an investigation into the fluctuations in Yes Bank's shares before the July 2022 share offering, in which Carlyle and Advent acquired a 10% stake for $1.1 billion. The bank's shares rose 6% a day after the deal was announced on July 29, 2022.

Advent hired EY for tax advisory services before the share sale. Yes Bank hired EY Merchant Banking to perform valuation work. At the same time, Carlyle and Advent hired PwC for tax planning and due diligence. Market regulator SEBI found that executives from both EY and PwC violated confidentiality rules. This allowed some individuals to trade in Yes Bank shares before the capital was raised.

This move, in a rare instance of regulatory action, has accused 19 individuals, including senior executives from global consulting and private equity firms, of violating insider trading rules. Seven of these individuals traded based on privileged information, and four shared that information. These include eight executives from PwC and EY. The accused individuals and companies are in the process of preparing their responses to SEBI's notice. If the allegations are found to be true, they could face financial penalties or sanctions.

Market regulator SEBI stated in the notice that EY's insider trading policy was not in accordance with regulations. The regulator has also asked EY India Chairman Rajiv Memani and Chief Operating Officer to explain why they should not be penalized.