Market regulator SEBI has charged A.Vellayan, chairman of Murugappa group and 3 other people Gopalakrishnan C, V.Karuppiah and A.R. Murugappan in an Insider Trading Case related to Sabero-Coromandel deal dating back to 2011. SEBI has also directed them to surrender unlawful gains along with interest amounting to Rs. 2.15 crore, which it says is lying in the bank accounts of these people. Below we reveal the entire story of the case.
Murugappa Group Chairman A Vellayan unveiling its logo in 2010
SEBI in statement said that on receipt of certain complaints alleging that the unpublished price sensitive information (UPSI) pertaining to the acquisition of the shares of Sabero Organic Gujarat Limited by Coromandel International Limited was leaked to certain persons, who were acting in concert with the management of Sabero/ Coromandel, it initiated a preliminary examination into the matter. Later, a detailed investigation was conducted by SEBI for the period of May 15, 2011 to June 15, 2011.
The price of the scrip of Sabero at Bombay Stock Exchange had increased from `58 (i.e. the opening price on May 16, 2011) to `127 on June 09, 2011 after touching `130.50 (intraday high on June 06, 2011). Similarly, the price of the scrip at National Stock Exchange had increased from `57.80 as on May 13, 2011 to `126.45 on June 15, 2011 after touching a high of `130.90 as on June 14, 2011.
Sabero was incorporated in November 1991 and was in the business of manufacturing chemical intermediates for pesticides and flame retardant. The price of the scrip of Sabero at Bombay Stock Exchange had increased from `58 (i.e. the opening price on May 16, 2011) to `127 on June 09, 2011 after touching `130.50 (intraday high on June 06, 2011). Similarly, the price of the scrip at National Stock Exchange had increased from `57.80 as on May 13, 2011 to `126.45 on June 15, 2011 after touching a high of `130.90 as on June 14, 2011.
The investigation has revealed that on May 15, 2011, the representatives of Coromandel (including its Chairman, Mr. A. Vellayan) and Sabero attended a meeting, in order to discuss and negotiate the acquisition. I note that on May 15, 2011, Coromandel had appointed ‘legal advisors’ for carrying out the due diligence exercise in connection with the acquisition of the shares of Sabero. On the same date ‘financial advisors’ were also appointed by Coromandel to carry out the initial assessment of the financial information provided by Sabero. Thereafter, discussion on other aspects relating to the acquisition were also held, during the period of May 18, 2011 to May 30, 2011. On May 31, 2011, Coromandel had informed the Exchanges about the acquisition. Sabero on June 02, 2011, informed the Exchanges about the acquisition. On the same day, i.e., June 02, 2011, a public announcement was made by Coromandel regarding the acquisition of Sabero.
Based on the analysis of the trading pattern in the scrip of Sabero, SEBI identified Mr. Gopalkrishanan C., V. Karuppiah (HUF) and a few others (hereinafter referred to as ‘suspected entities’) based on their trading concentration. During the examination, SEBI had enquired from Coromandel, Sabero and the professional entities involved in the acquisition process about their connection with the suspected entities. However, Coromandel, Sabero and the professional entities confirmed that neither themselves nor the employees who were associated with the takeover process, had any connection with the suspected entities and that they have not passed the UPSI to them.
The prima facie financial links among Mr. Gopalakrishnan. C, Mr. A.R. Murugappan and Mr. A. Vellayan have been traced. The statement of Mr. A.R. Murugappan was recorded by SEBI during the course of investigations, which revealed that Mr. A. Vellayan’s grandfather is the brother of Mr. A.R. Murugappan’s mother. Mr. A. Vellayan vide his letter dated February 09, 2015, submitted that Mr. A.R. Murugappan would have been related to him, distantly. The same confirms that Mr. A. Vellayan and Mr. A.R. Murugappan were sharing personal relationship and in all possibilities communicated the UPSI to Mr. A.R. Murugappan, which was shared to Mr. Gopalkrishanan C. Mr. A.R. Murugappan in his statement dated November 26, 2014, has also confirmed that Mr. V. Karuppiah is his son-in-law (whose HUF is found to be one of the suspected entities during the course of examination).