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SEBI settles insider trading case with Rakesh Jhunjhunwala

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SEBI settles insider trading case with Rakesh Jhunjhunwala

The Securities and Exchange Board of India (SEBI) has moved to settle an ‘insidertrading’ case involving ace investor Rakesh Jhunjhunwala, wife Rekha Jhunjhunwala andeight others who were accused of unusual dealing in shares of Aptech Computers.

The parties will have to pay ₹37 crore to settle the case, which includes settlementcharges, disgorgement of ill-gotten gains and interest. The amount will be paid by tenindividuals along with Jhunjhunwala, who has a major stake in multiple companies.

SEBI’s consent route

Jhunjhunwala and others settled the case under SEBI’s consent route where an allegedwrongdoer can close investigations and adjudications into the matter with SEBI withoutadmitting or denying guilt and charges against them. Others who have settled the caseinclude Ramesh Damani, Utpal Sheth, sister Usma Sheth. The total charges paid byRakesh Jhunjhunwala amount to ₹18.5 crore, of which the disgorgement amount is nearly₹6 crore. His wife Rekha has paid ₹3.2 crore. Aptech board members, including investorRamesh S Damani and director Madhu Jayakumar, have paid ₹6.2 crore and ₹1.7 crorerespectively.

Jhunjhunwala has management control over Aptech and is also on the board of thecompany. In September 2016, the share price of Aptech hit a 10 per cent upper circuit asJhunjhunwala’s brother and sister picked up 2.5 lakh and 5 lakh shares respectively. Boththese trades combined were worth more than ₹100 crore then. There were tradesexecuted by others as well. In just a few days, Aptech announced its entry into the pre-school education segment.

Shareholding of promoters led by the Jhunjhunwala family has increased to around 48 percent in Aptech since the prominent investor first picked up a 10 per cent stake in thecompany in 2005. SEBI found that there existed unpublished price sensitive information inAptech when the high-profile investors were dealing in the company shares.

Apart from Jhunjhunwala, others who were probed by SEBI include Ramesh Damani,Jhunjhunwala’s brother Rajesh Kumar, a chartered accountant, wife Rekha, mother-in-lawSushiladevi Gupta, Ushma Sheth and Madhu Vadera Jayakumar. Ushma is the sister ofUtpal Sheth, CEO, Rare Enterprises — Jhunjhunwala’s flagship investment company.

Jayakumar is a board member of Aptech. Notice and summons were issued to all theseinvestors last year. Trading in Aptech by these investors between February andSeptember 2016 was under SEBI scanner

What SEBI alleged

SEBI had alleged that Jhunjhunwala and others traded in Aptech when in possession ofunpublished price sensitive information (UPSI). In September 2016, Aptech hadannounced its foray into the preschool segment. As per the SEBI order, this was an UPSIbetween March 14, 2016 and September 7, 2016, the date of official announcement.

“It is alleged that Utpal Seth and Rakesh Jhunjhunwala were in possession of the UPSIand communicated the same to other applicants. On the basis of the UPSI, RakeshJhunjhunwala, Rekha Jhunjhunwala, Rajeshkumar Jhunjhunwala, Shushila Devi Gupta,Sudha Gupta and Ushma Seth Sule are alleged to have traded in the scrip of Aptechduring the UPSI period,” the SEBI order said.

“The Settlement Mechanism of SEBI borrows aspects from the settlement model adoptedby US SEC. There are various cases where an entity files settlements only to avoidlitigation and buy peace. Settlement per se does not mean any admission by the noticewhatsoever. It is not even an indication that SEBI’s case was foolproof. Settlement is donewithout admitting or denying the findings of fact and conclusions of law.” said SumitAgrawal, Former SEBI Officer and lawyer of Rakesh Jhunjhunwala.