SEBI slaps penalty on Divi’s Laboratories CFO for insider trading in 2017; share price tumbles 5%

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Market regulator Securities and Exchange Board of India (SEBI) on Thursday morning announced its decision to impose a penalty on pharmaceutical major Divi’s Laboratories’ Chief Financial Officer L Kishore Babu, along with seven other persons for violating the insider trading rules. The SEBI order pertains to an investigation into these people for purchasing Divi’s Laboratories shares in 2017 on the basis of unpublished price sensitive information (UPSI). The market regulator said that it will impound the alleged unlawful gains of Rs 96 lakh from the investigated persons. Divi’s Laboratories share price dropped 5% during the opening hours on Thursday.

SEBI, while investigating an announcement made by Divi’s Labs in 2017, identified L Kishore Babu, Praveen Lingamneni, Nagesh Lingamaneni, Sri Lakshmi Lingamaneni, D Srinivasa Rao, Radhika Dronavalli, Gopichand Lingamaneni, and Pushpa Latha Devi as insiders “who had, directly or indirectly, traded in the scrip during the investigation period”. The investigation circled around a corporate announcement made by Divi’s to the stock exchanges on July 10, 2017. “Divis had made an announcement on July  10,  2017 (Corporate  Announcement) during market hours on the exchange platform titled ‘USFDA to Lift Import Alert 99-32 on the company’s Unit-II at  Visakhapatnam’,” SEBI said. The price of Divi’s stocks on July 7 closed at Rs 680 per share, however, after the information was disclosed to the stock exchanges, the price shot up to Rs 734 per share at the end of the trading session on July 10, 2017.

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The market regulator found that the UPSI came into existence on July 7, when Divi’s Director Kiran Divi had received an email from the regulatory counsel of the company about the lifting of the import alert. Prior to the information being made public through the bourses, SEBI said, “The UPSI  had filtered down to the manager level in the organization before the announcement on the exchange platform”. SEBI added that L Kishore Babu being the CFO of the company is reasonably expected to be aware of the said information. 

SEBI noted that Praveen Lingamneni, the son of L Kishore Babu purchased 18,000 equity shares of Divi’s labs on July 7 and 28,000 stock futures on the same date. “Praveen Lingamneni is the son of L Kishore Babu. Further, it was also observed that L Kishore Babu has funded the trades of  Praveen  Lingamneni.  Therefore, Praveen  Lingamneni and L Kishore Babu are insiders as per Regulation 2(1)(g)(i) and 2(1)(g)(ii) respectively of the SEBI (PIT) Reg., 2015. Praveen Lingamneni had traded in the scrip of Divis during the UPSI period,” SEBI said. The investigation brought to light that the trades made during the UPSI period were either sold or squared off in a few days post the information being made public. 

The investigation found Praveen Lingamneni, Sri Lakshmi Lingamaneni, Radhika Dronavalli, Gopichand Lingamaneni, Pushpa Latha Dev had made wrongful gains by trading in Divi’s Labs during the UPSI period. The amount calculated by SEBI adds to Rs 96,681,82.14 after levying an interest at the rate of 12% simple interest per annum.

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