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Facebook Friends - Related Parties

Facebook friends will be treated as Related Party: SEBI

Inception

In the year 2012 SEBI had probed into the matter of violation of the stipulated insider trading norms in the scrip of the company Parled Technologies Private Limited.

The backdrop of the matter is that the said company had sustained a considerable extent of financial crunch marked by a remarkable fall in the price of stock of the company. Henceforth, in order to revive such a distressed state of the company, it decided to undergo an overall financial restructuring that might take the shape of slump sale of the enterprise to another entity with an anticipation of fetching an immense amount of cash and simultaneously generate worth of the company in the market.

The stockholders are by and large benefitted since they have gained more than the rate at which the shares are being traded in the market resulting to the company’s decision of dividend declaration and simultaneously to undergo the process of buyback of shares. Subsequently the company experienced a rising trend in the share prices.

However, to the misfortune of the company it has been disclosed as a result of a thorough investigation held by SEBI that the key personnel of the company, namely the CMD, CMO along with quite a few persons    were engaged in the malpractices of what is commonly known as “Insider Trading”. They had been supposed to hold Unpublished Price Sensitive Information which constituted the basis of unscrupulous trading of the scrip of PTL.

Actual incident

In the real field scenario the so called Unpublished Price Sensitive Information was held as a matter of discussion amongst the high profile members of the company. Moreover the discussions relating to the issues of merger of the company with another company has gained the approval of the Board of Directors.

In the light of the above mentioned incident the person concerned was sought to carry the allegation of being an “insider trader”.

Facebook friends will be treated as related party

Sebi gave clear instructions that persons associated as mutual friends through social media like facebook shall come under the purview of “Connected Persons”. Sebi’s Member Prasant Saran clearly held that under such circumstances the persons concerned shall bear the label of “related parties” and henceforth the course of evaluation or due diligence of one party in the hands of other is officially restricted.

Eventually the platform of Facebook is accepted as a criterion for deciding as to whether the parties in question are related to one another in terms of the above mentioned SEBI Regulations.

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