Insider trading involves buying or selling securities based on non-public information by corporate insiders or other individuals with access to such information. It is illegal and a breach of fiduciary duty as it gives unfair advantage to traders who have access to insider information not available to the general public. A case study on insider trading charges against Hindustan Unilever Limited regarding its merger with Brooke Bond Lipton India Ltd is discussed. While SEBI charged HLL with insider trading, the Union Finance Ministry and HLL argued the merger information was widely reported and therefore "generally known".

1. INSIDER TRADING
PRESENTED BY :
PALLAVI

2. INSIDER TRADING
Insider Trading is the buying , selling or dealing
in securities of a listed company by a director ,
member of management , employee of the
company , or by any other person such as internal
auditor , advisor , consultant , analyst etc, who
has knowledge of material inside information
which is not available to general public.

3. • It is illegal
• Unfair to other investors who do not have
access to the information.
• It is breach of a fiduciary duty or other
relationship of trust, and confidence.
• It is a crime if made to get wrongful gain or
avoid losses

4. 1. Corporate officers - directors and employees who , traded
the company’s securities after learning of significant,
confidentiality corporate developments;
2. Employees of law, banking , brokerage and printing
firms- who were given such information to provide services
to corporation whose securities they traded;
3. Government employees – who learned of such information
because of their employment by the government?

5. ADVANTAGES OF INSIDER
TRADING
• Mass security transaction
• Tiny investors to benefit
• Benefits the institutional buyers

6. DISADVANTAGES OF INSIDER
TRADING
• Stockbrokers, informers and frauds manipulate the
security markets by leaking information.
• Spread out rumour about a insider transaction.
• Enhance the risk for stock market crash.
• Leads to a decrease in the overall trust in the
market.

7. CASE STUDY :- HINDUSTAN
UNILEVER LIMITED V/S SEBI
• Insider trading charges against HLL with
regard to its merger with Brooke Bond
Lipton India Ltd.
• legal controversy surrounding these
charges.

8. HLL V/S SEBI
• HLL's purchase of 8 lakh shares of BBLIL two
weeks prior to the public announcement of the
merger of the two companies (HLL and BBLIL).
• SEBI, suspecting insider trading, conducted
enquiries,
• SEBI issued a show cause notice to the
Chairman, all Executive Directors, the Company
Secretary and the then Chairman of HLL.
• SEBI passed an order charging HLL with insider
trading.

9. ISSUES INVOLVED IN THE
CASE
1) Whether HLL was an insider or not?
2) Whether or not the pre-merger
information HLL had access to was
‘Unpublished’?
3) Whether HLL had any price sensitive
information with regard to the merger?
4) Whether or not HLL had gained any
unfair advantage out of the deal?

10. RESPONSE OF UNION FINANCE
MINISTRY
• Union ministry upheld HLL’S view that the merger was
“generally known” as it was widely speculated in
national media.
• As per the ministry, SEBI should gather conclusive
evidence and should present strong case to support its
arguments.
• Still further the SEBI suffered from procedural
deficiencies and prosecuting and penalizing HLL was
beyond there jurisdiction.
• Stance taken by the ministry to treat the merger as
‘generally known information’ is appropriate, as it was
being widely speculated in the media and any investor
could use the same.

11. STEPS TO CUT DOWN ON
INSIDER TRADING
• Companies need to keep a close eye on external parties such as
advisers and consultants.
• Having an internal watchdog is a good idea.
• Time to carefully review analysts’ reports for possible information
leaks.
• Third-party verification
• Corporate code prohibiting insider trading
• Phone tapping & surveillance
• Punishment

12. HOW INSIDER TRADING IS
CONNECTED WITH
CORPORATE LAW
• Conflict of interests and the misuse of
power

13. THANK YOU !!!!!