Exclusive: SEBI seeks details from Bank of America over alleged front-running

Capital market regulator Securities and Exchange Board of India (SEBI) has sought details from Bank of America in a matter related to alleged front-running. SEBI has sought details on a number of aspects including action taken against two investment bankers handling the equity capital market vertical in India. A top regulatory source told Zee Business on the condition of anonymity: “We have received details from the entity concerned and the issue is being examined, front running is a serious allegation.”

“Information from exchanges is also sought to understand the details of the issue”, another source said. 

The investigation is being carried out on the basis of a complaint received from a whistleblower about the top management at Bank of America. The whistleblower has alleged possible front-running in a few issues handled by the bankers, suggesting that certain unpublished price-sensitive information was shared with a few investors on instant messaging platform WhatsApp before it was made public and was also not reported internally.  

SEBI has sought details from the bankers on a number of aspects including their pre-announcement meetings, meeting records, past public issues handled, and standard investor pitching practices. The market regulator is examining the issue and will take appropriate action if the allegations are substantiated. It can take action under the prevention of Insider Trading regulations if front-running is proven. The regulator will also examine if the bankers have violated the merchant banking regulations in any manner.

A few weeks ago, international media reports suggested that Bank of America had initiated an internal investigation against two of its bankers in India who shared unpublished price-sensitive information and allegedly engaged in front-running. BofA was learned to have suspended the two bankers, deployed on its Indian operations, in an administrative move until the completion of investigations. 

The reports also suggested that bankers sent messages or held meetings with some hedge funds on behalf of the Sunlife group,  the seller in Aditya Birla Sunlife OFS. It was also found that the meetings and communication happened before the OFS opened and they didn’t disclose it as per the requirement. The whistleblower alleged similar practices were followed by the bankers in the First Cry IPO and the PNB Housing Finance rights issue.

Speaking on the condition of anonymity, a merchant banker aware of the issue said: “There is a thin line here. Bankers have to share details for public issues. Unless they do that, how can investors be pitched? Such information is shared with utmost trust. It’s unfortunate if such sensitive information is misused. This may compel the regulator to come up with harsher guidelines.”

Responding to queries from Zee Business, a Bank of America spokesperson in India said, “We don’t have a comment to offer.” However, email queries sent to SEBI were yet to elicit a response at the time of publishing this report.

According to media reports, BofA has sought help from Indian law firm J Sagar & Associates in India to investigate the case.

Bank of America has been involved in prominent offerings by a number of firms such as Ola Mobility Ltd, Bajaj Housing Finance, Brainbees Solutions, Aditya Birla Sunlife OFS, Delhivery Ltd, Emcure Pharmaceuticals Ltd, FSN E-Commerce Ventures Ltd, Glenmark Life Sciences Ltd, and Life Insurance Corporation of India. Typically, incidents like this may create doubts in investors’ minds. According to international media reports, a few firms are taking back the fundraising mandate from Bank of America following this incident.