Capital and commodities market regulator Sebi has found the Chief Financial Officer of Divis Laboratories L Kishore Babu and seven others guilty of insider trading charges. The eight persons had in July 2017, dealt in shares of the company based on unpublished information about the USFDA import alert on the company’s Unit-II at Vishakhapatnam being lifted.

All eight persons have been collectively asked to pay Rs 97 lakh as penalty; this includes around Rs 74 lakh of illegal gains and the rest as interest from July 2017 till date.

The eight persons are Kishore Babu, Praveen Lingamneni, Nagesh Lingamaneni, Sri Lakshmi Lingamaneni, Radhika Dronavalli, D Srinivasa Rao, Gopichand Lingamaneni, and Pushpa Latha Devi. Of these, Praveen is the son of Kishore Babu. Nagesh and D Srinivasa Rao work as managers at Divis. Sri Lakshmi is the wife of Nagesh, and Radhika, the wife of Srinivasa Rao. Radhika is Gopichand’s sister, and Pushpa Latha, his wife.

Source: Sebi order

Sebi says that the unpublished price sensitive information (UPSI) came into existence on July 7 when Kiran Divi, a director of the company, received an e-mail from the company’s legal department, on the import alert being lifted.

In its submission to Sebi, the company said that Kishore Babu learned about the development only on the morning of July 10 when the information was to be shared with the stock exchanges.

But Sebi rejected the claim.

“As the CFO of the company, L Kishore Babu is reasonably expected to know major updates related to the import alert which has a significant impact on the financials of the company.

Further, it was observed that the UPSI had filtered down to the manager level in the organisation before the announcement on the exchange platform; so L Kishore Babu being the CFO of the company is reasonably expected to be aware of the said information,” the SEBI order said.

Kishore’s son Praveen had bought 28,000 shares of Divis and 28,000 futures of the stock—both through Kotak Securities—on July 7. On July 10, the day when Divis informed the exchanges about the USFDA communication, both positions were squared off.

Sebi observed that Praveen’s trades were funded by Kishore and deemed both of them as insiders. Under the rules, Kishore was required to get a pre-clearance from the company for the trades done by his son, which Kishore failed to do.