In a landmark decision, the Securities and Exchange Board of India (SEBI) has issued a settlement order, clearing Wockhardt Ltd. and its three directors, Habil Khorakiwala, Murtaza Khorakiwala, and Huzaifa Khorakiwala, of insider trading allegations.
MUMBAI (India CSR): In an important development, pharmaceutical and biotechnology giant Wockhardt Ltd and its directors, Habil Khorakiwala, Murtaza Khorakiwala, and Huzaifa Khorakiwala, have entered into a settlement with the Securities and Exchange Board of India (SEBI), over alleged insider trading and fraudulent trade practices during 2012-2013. The settlement involves a total amount of INR 76.68 lakh.
The settlement order released by SEBI is related to an investigation conducted into the company’s trading activities from January 2012 to August 2013. SEBI has concluded that Wockhardt Ltd and its directors may have violated various regulations, including SEBI (Prohibition of Insider Trading) Regulations, 1992, and SEBI (Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities Market) Regulations, 2003.
SEBI had conducted a thorough investigation into Wockhardt’s trading activities between January 2012 and August 2013, citing potential violations of insider trading and fraudulent trading practices regulations due to noticeable trading activity within this period.
Wockhardt, a global pharmaceutical and biotechnology organization headquartered in Mumbai, saw its scrip’s price soar by 655% within 14 months during this period. However, a sharp fall was observed around May 2013 when an ‘Import Alert’ letter from the USFDA (United States’ Food and Drugs Administration) was issued to the company.
The case relates to Sebi’s investigation into the trading activity in Wockhardt shares for the period January 7, 2012, to August 7, 2013.
During the period January 7, 2012, to March 8, 2013, the price of Wockhardt’s stock rose from Rs. 273.25 to Rs. 2,065, a 655% increase within 14 months, the regulator said.
An announcement was made by Wockhardt to the stock exchanges on May 24, 2013, regarding a letter issued by the US Food and Drug Administration (USFDA) to it about an ‘Import Alert’.
It was observed that the stock price fell sharply from Rs. 1,798.30 on May 17, 2013, to Rs. 1,229.70 on May 24. On August 7, 2013, the stock closed at Rs. 362.25, Sebi said.
The regulator said USFDA visited the manufacturing facility of Wockhardt at Waluj, Maharashtra, during March 18-22, 2013 to inspect the factory and data pertaining to an abbreviated new drug application filed by Wockhardt with the US regulator for Zoledronic acid injection. USFDA then issued Form 483 which is regarded as adverse observations on factory facilities.
The share price of Wockhardt fell by over 15% during April 10-15, 2013. The price-sensitive information related to Form 483 came into existence on March 22, 2013, and it was confirmed by Wockhardt on April 15, 2013, through a press release on its website.
“During the investigation, it is observed that Wockhardt did not disclose the information related to Form 483 issuance by USFDA to its Waluj factory to the stock exchanges immediately,” SEBI said in its order.
The SEBI investigation focused on allegations of the company’s failure to promptly disclose information related to the Form 483 issuance by the USFDA to its Waluj factory. It was also alleged that the company did not take action under its internal code of conduct against any designated employee for any trading activity during the investigation period.
The three directors, being part of the company’s board, were accused of failing in their supervisory roles, particularly regarding the implementation of the code of conduct as specified in the insider trading regulations.
According to the released order, the settlement amounts are INR 36,70,875 for Wockhardt Ltd and INR 13,32,500 each for the three directors. The settlement was finalized without any admission or denial of the allegations by the applicants.
The order comes into effect immediately and brings to an end the ongoing adjudication proceedings initiated against Wockhardt Ltd and its directors. However, SEBI retains the right to take enforcement action if any false disclosures by the applicants are discovered, if there are defaults not covered under the settlement order, or in case of non-compliance with any terms of the settlement order.
