Whalesbook
Sebi Alleges Bank of America Unit Violated Insider Trading Rules
India's Securities and Exchange Board of India (SEBI) has accused a unit of Bank of America of breaching insider trading regulations and failing to maintain its internal "Chinese walls" during a significant share sale in March 2024. The allegations are detailed in a notice issued by the regulator following an investigation into the management of Aditya Birla Sun Life Asset Management Company's (ABSL AMC) stock offering.
Regulatory Allegations Surface
The SEBI notice, dated October 30, reveals that the bank's deal team allegedly possessed unpublished price-sensitive information related to the share sale. Despite this, the team is accused of making indirect or direct contact with potential investors. This action, according to the regulator, highlights a critical failure in safeguarding confidential information and maintaining robust internal controls.
Breach of 'Chinese Walls'
SEBI's investigation found that the bank's broking arm, research team, and Asia-Pacific syndicate team were involved in reaching out to investors at the deal team's behest. These teams shared valuation reports and other confidential details concerning the $177 million ABSL AMC share sale. The regulator stated that this conduct demonstrates the "failure of (the bank's) deal team to maintain Chinese walls with broking/research arms." SEBI also accused the bank of suppressing material facts and providing false statements during the probe.
The case initially surfaced in 2024 through a whistleblower complaint. This led to an internal bank investigation and the subsequent exit of senior officials. SEBI's notice specifically cites interactions with HDFC Life, Norway's central bank Norges Bank, and Indian investment firm Enam Holdings. Indian insider trading laws restrict investment banks from sharing price-sensitive information without a legitimate reason once appointed to manage a transaction.
Bank Seeks Settlement
Bank of America's domestic securities unit reportedly contacted investors for feedback after its appointment on February 28, 2024, and before the formal announcement on March 18, 2024. SEBI pointed to specific instances, including the broking arm providing a valuation report for ABSL AMC and its sponsor to Enam Holdings, and the APAC syndicate team in Hong Kong seeking feedback from Norges Bank. The regulator concluded that information related to dealings with ABSL AMC was not handled on a "need-to-know" basis.
While the notice did not present evidence of specific price-sensitive information exchange, the bank is understood to have filed an application with SEBI to settle the charges without admitting guilt. This application is currently under review. SEBI noted that the bank initially denied communications with investors and claimed feedback was generic, only acknowledging conversations after being presented with responses from investors. The bank stated that three officials resigned in November 2024 for violating internal protocols, not securities laws.