MUMBAI, Jan 8 (Reuters) – India’s markets regulator has accused a Bank of America (BofA) (BAC.N), opens new tab business of violating insider trading rules and breaking internal “Chinese walls” in a 2024 share sale, a notice from the Securities and Exchange Board of India (SEBI) showed.
The notice followed a SEBI investigation into the conduct of BofA’s Indian securities unit in managing a March 2024 Aditya Birla Sun Life Asset Management (ABSL AMC) (ADIE.NS), opens new tab stock sale.
BofA, which did not respond to requests for comment, has filed an application with SEBI to settle the charges without admitting guilt, a source with direct knowledge of the matter said. The application is under review by SEBI, said the source, who spoke on condition of anonymity due to its sensitive nature.
BofA is also responding to the SEBI notice, a second source with direct knowledge said on condition of anonymity, also citing the sensitive nature of the matter.
The Wall Street Journal first reported the October 30 dated SEBI notice, citing people familiar with the matter. SEBI did not respond to requests for comment from Reuters.
SEBI’s notice, which is not public and has been reviewed by Reuters, said its investigation found BofA’s deal team, while holding unpublished price-sensitive information on the share sale, contacted potential investors “directly/indirectly”.
At this team’s request, BofA’s broking arm, research team and Asia-Pacific syndicate team contacted investors and shared valuation reports and other confidential details, it said.
“The conduct highlights the failure of (the bank’s) deal team to maintain Chinese walls with broking/research arms, impacting safekeeping of confidential information and internal controls,” the SEBI notice said.
It said BofA suppressed material facts and made false statements during the SEBI probe into the case, which first came to light in 2024 via a whistleblower complaint. This led to an internal bank probe and the exit of senior officials.
IMPROPER CONTACT WITH INVESTORS?
SEBI’s notice cites BofA interactions with HDFC Life (HDFL.NS), opens new tab, India’s second-largest private insurer, Norges Bank (NOCB.UL), Norway’s central bank, and Indian investment firm Enam Holdings.
Indian insider trading rules, as in other countries, prohibit an investment bank from sharing price sensitive information with employees outside of the deal team once it has been appointed to manage a transaction, unless it has a legitimate reason for doing so.
SEBI said in this case BofA’s research, broking and Asia-Pacific teams sought investor feedback after the bank was appointed to manage the deal on February 28, 2024 and before the formal announcement of the share sale on March 18, which it said breached the rules.
The notice cites an example where the deal team asked the broking arm to provide a valuation report for ABSL AMC and its sponsor, Aditya Birla Group, to Enam Holdings, a potential investor in the share sale that was worth $177 million.
In another instance, the deal team requested the APAC syndicate team in Hong Kong – not a part of the deal team – to seek feedback from Norges Bank on its interest in the offering.
“As such, information related to dealings with ABSL AMC was not handled by (the bank) on a ‘need-to-know’ basis,” SEBI said, adding that broking, research, and syndicate teams acted on behalf of the deal team.
The notice did not provide evidence of an exchange of specific price-sensitive information in any of the interactions.
HDFC Life, Enam Holdings and ABSL AMC did not respond to emailed queries. Norges Bank declined to comment.
“This case looks less like classic insider trading and more like an internal-controls failure, which can attract serious regulatory action,” said Sumit Agrawal, Senior Partner at Regstreet Law.
BANK FLIP-FLOPPED ON CONVERSATIONS, SAYS SEBI
The SEBI notice said that in response to its queries, BofA initially denied any meetings or communication with investors regarding the share sale and said its internal legal review found no violation of Indian regulations.
The bank claimed investor feedback was generic and preceded its appointment to manage the share sale, the notice said.
It was only after SEBI confronted BofA with responses from HDFC Life and Enam that it acknowledged conversations with potential investors, it said.
The notice said the bank told SEBI that three officials were asked to resign or leave in November 2024 for violating internal protocols by not taking clearances for meeting with potential investors and obstructing investigations, and not for breaching securities laws.
The bank “tried to make untrue statements or suppress material facts while furnishing information to SEBI”, it said.