From profit to penalty: The perils of insider trading

livemint.com:

MUMBAI : A profit of ₹1,878 turned into a penalty of ₹1 lakh. This harsh reality encapsulates the high-stakes world of insider trading. Sudhir Bapusaheb Devkar, an IT department employee at Mindtree, found himself on the wrong side of the law when a seemingly harmless trade in his employer’s stock spiralled into a financial nightmare.

His case serves as a stark reminder of the complex and often misunderstood regulations surrounding insider trading. Devkar's dream of supplementing his income through day trading was shattered when he was penalized ₹1 lakh for trading in his employer’s stock without proper disclosure. “I have always worked in the area of engineering and technology and have never had any knowledge of any areas of finance concerning the company," Devkar said in response to an order by markets regulator Securities and Exchange Board of India (Sebi), dated 29 June 2022.

“These provisions were not widely publicized for a layman like me to know that such a provision exists." Despite his plea, Sebi imposed the minimum penalty of ₹1 lakh for the offense. According to Abhishek Dadoo, partner at Khaitan and Co., these rules are designed to prevent those with unpublished price-sensitive information (UPSI) from short-changing unsuspecting investors. However, this incident illustrates how individuals without knowledge of these regulations can inadvertently find themselves penalized.

In August 2020, Sebi had sent a letter to Mindtree, requesting a list of individuals subject to its insider trading regulations. This inquiry revealed that Devkar had traded Mindtree stock on three separate occasions without disclosure. At that time, employees had to report trades exceeding ₹10 lakh in their employer’s shares within two