Insider Trading: SEBI may reopen the case against Drug Major Sun Pharma, shares crash after news speculation

December 03, 2018:

On Monday, shares of Sun Pharmaceutical Industries Ltd. plunged as much as 11% to ₹ 441.95 on BSE in the early morning trade, following media reports that SEBI has decided to start a probe against the drug major on the basis of a whistle-blower complaint.

This is Sun Pharma’s biggest daily loss since May 2017. The stock hit an over six-month low and is the top decliner on NSE.

In a letter sent to the capital markets regulator SEBI, a whistleblower alleged that Sun Pharmaceutical Industries founder and managing director Dilip Shanghvi and his brother-in-law Sudhir Valia were engaged in financial irregularities with Dharmesh Doshi, a key figure from the 2001 Ketan Parekh scam.

The whistle-blower has accounted that the pharmaceutical firm committed corporate governance & tax-related lapses, apart from other securities market-related violations.

Following the 2001 scam, which is also India’s second-biggest stock exchange scandal, SEBI had banned Doshi and Parekh. Doshi is a former associate of Parekh. The case was settled through the consent mechanism.

Now, SEBI is looking to reopen the case against the promoters and the company, and is likely to probe alleged lapses by some of its promoters and other entities in raising funds overseas. SEBI has powers to reopen cases of a settlement related to insider trading on various grounds.

Last year in August, Sun Pharmaceutical, Dilip Shanghvi and nine other entities settled an insider trading probe on payment of ₹ 18 lakh towards settlement charges.

SEBI is also likely to investigate alleged irregularities Sun Pharma, its promoters and others in raising funds through Foreign Currency Convertible Bonds (FCCBs).

Last week, stock exchanges had sought clarification from the company after a brokerage report raised concerns about certain practices at the company.

In a response, Sun Pharma said that,“Certain points raised in the said note are incomplete and have been presented in a negative manner…The supporting information to the points raised in the note has been sourced from the public domain and hence this information/ data is already available in public.”

Media reports suggest that the concerns seem related to the Sun Pharma’s acquisition of Ranbaxy from Japanese drugmaker Daiichi.

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