India’s regulator has accused Bank of America of violating insider trading rules over the 2024 deal
India’s market regulator has accused Bank of America of violating insider trading rules and breaching internal “Chinese walls” in the 2024 share sale, the notice showed.
The notice by the Securities and Exchange Board of India (SEBI) followed its investigation into the conduct of the bank’s domestic securities division in managing the March 2024 stock sale of Aditya Birla Sun Life Asset Management.
The investigation found that the bank’s dealings team, while handling unpublished price sensitive information about the sale of shares, affected potential investors “directly/indirectly”, said the notice, which is not public and reviewed by Reuters.
At the request of the deal team, the bank’s retail team, research team, and Asia-Pacific corporate team contacted investors and shared valuation reports and other confidential information, the October 30 notification said.
“The conduct highlights the (bank’s) team’s failure to maintain China walls through hacking/research arms, which impact on confidentiality and internal controls,” SEBI said.
It added that the bank suppressed facts and made false statements during the investigation.
Bank of America and SEBI did not respond to emailed questions from Reuters.
The Wall Street Journal first reported on SEBI’s notice to the bank, citing people familiar with the matter.
The bank has applied to SEBI to settle the charges without admitting guilt, said a source with direct knowledge of the matter. The request is being reviewed, added the source, who did not want to be identified due to the sensitivity of the matter.
The case first came to light in 2024 with a whistleblower complaint, which led to an internal investigation of the bank and the exit of senior officials.
Poor communication with investors?
The SEBI notice cites the bank’s tie-up with three investors: HDFC Life, India’s second-largest private insurer; Norge Bank, Norway’s largest bank, and Enam Holdings, an Indian investment company.
India’s insider trading laws, like those of many other countries, prohibit an investment bank from sharing price-sensitive information outside of a legitimate purpose with personnel outside the deal team once it has been appointed to handle the transaction.
SEBI said in the case that the banking, broking and Asia-Pacific teams sought feedback from investors after the bank was appointed to handle the transaction on February 28, 2024 and before the formal announcement of the share sale on March 18, which it said was a violation of the rules.
The notice provides one such example where the deal team asked the sales unit to provide a valuation report for ABSL AMC and its sponsor, the Aditya Birla Group, to Enam Holdings, a potential investor in a $177 million share sale.
In one case, the deal team asked the APAC team in Hong Kong – not part of the deal team – to seek feedback from Norges Bank about its interest in the offer.
“Therefore, the details related to dealing with ABSL AMC were not handled (by the bank) in a ‘need to know’ manner,” SEBI said, adding that trading, research, and syndicate teams were working for the deals team.
The Notice did not provide evidence of the exchange of any price-sensitive information in any transaction.
HDFC Life, Norges Bank and Enam Holdings did not respond to emailed queries. ABSL AMC also did not respond.
“This case looks less like classic insider trading and more like a failure of internal controls, which would attract serious regulatory action,” said Sumit Agrawal, Senior Partner at Regstreet Law.
The bank responded candidly to the discussions, SEBI said
SEBI’s notice said that in response to its inquiries, the bank initially denied meetings or communications with investors regarding the share sale and said its internal legal review found no violation of Indian laws.
The bank said the investor response was normal and preceded its appointment to manage the share sale, the notice said.
It was only after SEBI confronted the bank with responses from HDFC Life and Enam that it agreed to discussions with potential investors regarding the sale of shares, it said.
The notice said the bank told SEBI that three officials were asked to resign or leave in November 2024 for violating internal regulations by not taking permission to meet with potential investors and obstructing investigations, not for violating securities laws.
The bank “attempted to make false statements or suppress facts while providing information to SEBI”, the notification said.
