SEBI recently concluded adjudication proceedings against a designated employee of Swan Energy Limited (SEL) concerning violations of insider trading regulations. The case centered on two key rules under SEBI’s Prohibition of Insider Trading (PIT) Regulations: designated persons must obtain pre-clearance from the company’s compliance officer for trades above certain thresholds, and they must not execute contra trades, meaning buying and selling the same securities within six months. Profits from any such trades are required to be deposited with SEBI’s Investor Protection and Education Fund.
During the investigation, it was found that the employee had executed trades and contra trades exceeding Rs. 10 lakh without seeking pre-clearance. Although the company had already conducted internal proceedings and the profit of Rs. 30,25,133 from the trades was deposited in SEBI’s IPEF account, SEBI emphasized that internal company actions do not exempt individuals from regulatory compliance. The employee argued that there was no intention to gain unfair advantage or harm investors and that the violations were minor or technical. However, SEBI clarified that ignorance of the rules or lack of intent does not absolve responsibility.
SEBI concluded that the employee violated the provisions requiring pre-clearance of trades as well as mandatory disclosure of trades exceeding Rs. 10 lakh to the company within two trading days. While the profits from the contra trades had already been disgorged, the failure to obtain pre-clearance and submit disclosures warranted monetary penalties. SEBI imposed a penalty of Rs. 1,00,000 for failing to obtain pre-clearance and another Rs. 1,00,000 for failing to make timely disclosures. The total penalty of Rs. 2,00,000 must be paid within 45 days, with SEBI noting that non-payment could trigger recovery proceedings.
The case highlights the importance of strict compliance with insider trading regulations. Even when trades are profitable or violations seem technical, designated persons are required to follow all rules diligently. This serves as a clear reminder that adherence to regulatory obligations is essential to avoid penalties and maintain investor confidence.
