Sun US Chief Settles Insider Trading Case
Executive Summary
Top Sun Pharma executive Abhay Gandhi and his wife have settled a case pertaining to alleged insider trading in shares of Ranbaxy around the time of the company’s acquisition by Sun from Daiichi Sankyo in 2014. Sun, which has been firefighting a raft of governance concerns, has vouched for the executive’s integrity.
Insider trading allegations pertaining to the acquisition of Ranbaxy Laboratories Ltd. have haunted Sun Pharmaceutical Industries Ltd. in the past, and a top Sun executive and his spouse have now settled one such case with the Securities and Exchange Board of India (SEBI).
Abhay Gandhi, currently Sun’s CEO (North America), and his wife Kiran have now settled with the Indian markets regulator a case concerning alleged insider trading in shares of Ranbaxy around the run up to, and announcement of, the acquisition of the company by Sun Pharma.
Gandhi was CEO of Sun Pharmaceutical Laboratories Limited, a wholly owned arm of Sun Pharma, when Sun snapped up Ranbaxy from Japan's Daiichi Sankyo Co. Ltd. for $4bn in April 2014.
Both Gandhi and his wife have each paid INR3,506,250 ($50,595) to settle their respective cases, details in two separate but near identical orders from SEBI revealed on April 11, which added that adjudication proceedings initiated against the duo now stand disposed of. The settlements were made without “admitting or denying the findings of fact and conclusions of law” and were endorsed by a panel of the whole time members of SEBI on March 29.
Case Details
The SEBI order, which describes the sequence of alleged insider trading activity, said that Sun approached Daiichi Sankyo to acquire Ranbaxy and then mails were sent by Sun’s advisers to the Japanese firm between September and November 2013. This was followed by more of such email communication between the advisers of Sun and Daiichi during January and February 2014.
Daiichi considered a Jan. 31, 2014 "presentation" sent by Sun and following meetings of the advisers of the Japanese firm and Sun on Feb. 11, and the appointment of Goldman Sachs as financial advisor on Feb. 13, Daiichi sought the “timelines for the closure of the deal” on Feb. 14, 2014.
“From this it is inferred that Daiichi agreed to the proposal of Sun on Feb. 14, 2014. Therefore, information that Daiichi has agreed to Sun 's proposal to acquire Ranbaxy was price sensitive information (PSI),” the SEBI order explained. While the PSI came into existence on Feb. 14, the deal was made public on April 7, 2014 before the start of trading hours, implying that the unpublished price sensitive information (UPSI) period was from Feb. 14 to April 6, 2014.
Gandhi and his wife essentially traded in 454 and 6,770 Ranbaxy shares respectively, during the UPSI period. In Gandhi’s case, shares were purchased on March 14 and sold on April 9, 2014, while his wife purchased shares on multiple occasions in February and March and sold these on April 9.
The regulator held that trading in the Ranbaxy stock by the duo - buying during the UPSI and selling immediately after the UPSI was made public - violated the SEBI (Prohibition of Insider Trading) Regulations.
Show cause notices had been issued to the Gandhis in August 2017 and the pair had, pending adjudication proceedings, applied to settle their respective cases in March last year.
‘Events Make You Uncomfortable’
While Indian stock markets appeared generally unmoved on April 12 by the insider trading settlement, industry experts and analysts said such lapses clearly left many questions unanswered.
“The flow of events makes you uncomfortable for sure amid all the noises around corporate governance. Several questions around systems in place come to mind,” one analyst, who declined to be identified, told Scrip.
One industry expert referred to the events around Gandhi’s alleged insider trading as a “very serious lapse of integrity”, adding that it further underscored the lapses of corporate governance that have plagued Sun Pharma over the last few weeks. (Also see "India Corporate Governance Practices – Will Pharma Walk The Gandhian Path?" - Scrip, 6 Dec, 2018.)
“While Gandhi’s act may be that of an individual, the position he holds cannot absolve him or the company of its consequences,” the expert added.
Sun has been firefighting corporate governance concerns that have riled investors over the recent past, and has initiated a series of actions including doing away with a controversial related party arrangement for domestic sales to address investor nervousness.
Another industry observer, however, underscored that there was no admission of any wrongdoing by the Sun executive and hence debates around the issue, though important, are “at best just that for now.”
Utmost Integrity
Sun itself stood by its senior executive and said that it is “pleased” that the matter of Gandhi and his spouse has been brought to closure.
“Sun Pharma has full faith that Mr Gandhi conducts himself with the utmost integrity in any situation,” the company said.
Sun had earlier quelled other insider trading allegations at the time of the Ranbaxy deal in 2014, after Ranbaxy's shares surged by more than 20% in the run up to the transaction, and also against the backdrop that Silverstreet Developers LLP, a subsidiary of Sun, had held a minor stake in Ranbaxy at the time. (Also see "Sun denies Ranbaxy deal insider trading suggestions" - Scrip, 9 Apr, 2014.)