Securities and Exchange Board Of India

July 5, 2023

INDIA

Section 3 of the Securities and Exchange Board Of India (Prohibition Of Fraudulent And Unfair Trade Practices Relating To Securities Market) Regulations, 2003 prohibits certain dealings in securities directly or indirectly such as: buying, selling or otherwise dealing in securities in a fraudulent manner, use or employ, in connection with issue, purchase or sale of any security listed or proposed to be listed in a recognized stock exchange, any manipulative or deceptive device or contrivance in contravention of the provisions of the Act or the rules or the regulations made thereunder; employ any device , scheme or artifice to defraud in connection with dealing in or issue of securities which are listed or proposed to be listed on a recognized stock exchange and finally section 3(d) prohibits engaging in any act, practice, course of business which operates or would operate as fraud or deceit upon any person in connection with any dealing in or issue of securities which are listed or proposed to be listed on a recognized stock exchange in contravention of the provisions of this Act or the rules in the act.

UNITED STATES

Section 30 (a) of the Securities Exchange Act of 1934 states that It shall be unlawful for any broker or dealer, directly or indirectly, to make use of the mails or of any means or instrumentality of interstate commerce for the purpose of effecting on an exchange not within or subject to the jurisdiction of the United States, any transaction in any security the issuer of which is a resident of, or is organized under the laws of, or has its principal place of business in, a place within or subject to the jurisdiction of the United States, in contravention of such rules and regulations as the Commission may prescribe as necessary or appropriate in the public interest or for the protection of investors or to prevent the evasion of this title. Further Section 30 (b) states that, “the provisions of this title or of any rule or regulation thereunder shall not apply to any person insofar as he transacts a business in securities without the jurisdiction of the United States, unless he transacts such business in contravention of such rules and regulations as the Commission may prescribe as necessary or appropriate to prevent the evasion of this title.

Also, 18 U.S.C. §§ 1341, 1343 states that Whoever, having devised or intending to devise any scheme or artifice to defraud, or for obtaining money or property by means of false or fraudulent pretenses, representations, or promises, or to sell, dispose of, loan, exchange, alter, give away, distribute, supply, or furnish or procure for unlawful use any counterfeit or spurious coin, obligation, security, or other article, or anything represented to be or intimated or held out to be such counterfeit or spurious article, for the purpose of executing such scheme or artifice or attempting so to do, places in any post office or authorized depository for mail matter, any matter or thing whatever to be sent or delivered by the Postal Service, or deposits or causes to be deposited any matter or thing whatever to be sent or delivered by any private or commercial interstate carrier, or takes or receives therefrom, any such matter or thing, or knowingly causes to be delivered by mail or such carrier according to the direction thereon, or at the place at which it is directed to be delivered by the person to whom it is addressed, any such matter or thing, shall be fined under this title or imprisoned not more than 20 years, or both. If the violation occurs in relation to, or involving any benefit authorized, transported, transmitted, transferred, disbursed, or paid in connection with, a presidentially declared major disaster or emergency (as those terms are defined in section 102 of the Robert T. Stafford Disaster Relief and Emergency Assistance Act (42 U.S.C. 5122)), or affects a financial institution, such person shall be fined not more than $1,000,000 or imprisoned not more than 30 years, or both.

Carpenter v. United States, 484 U.S. 19 (1987), the petitioner Winans was a coauthor of a Wall Street Journal investment device column which because of its perceived quality and integrity, had an impact on the market prices of the stocks it discussed. Although he was familiar with the Journal’s rule that the column’s contents were the Journal’s confident information prior to publication, Winans entered into a scheme with petitioner Felis and another stockbroker who, in exchange of advance information from Winans as to the timing and contents of the column, bought and sold stocks based on the column’s probable impact on the market, and shared profits with Winans. On the basis of this scheme, Winans and Felis were convicted of violations of federal securities and of the federal mail statutes, 18 U.S.C §§ 1341, 1343, which prohibit the use of mails or of electronic transmissions to execute “any scheme or artifice to defraud, or for obtaining money or property by means of false or fraudulent pretenses, representations, or promises.” petitioner Carpenter was convicted of aiding and abetting. The Court held that the petitioner’s conspiracy to trade on the Journal’s confidential information is within reach of the mail and wire fraud statutes. Winans violated his fiduciary obligation to protect his employer’s confidential information by exploiting that information for his personal benefit, all the while pretending to perform his duty of safeguarding it. Furthermore, the evidence strongly shows that he acted with a specific intent to defraud. The petitioners’ contention that the use of the wires and the mail to print and send the Journal to its customers is insufficient to satisfy the statutory requirement that the mails be used to execute the scheme at issue is rejected. Circulation of the column to Journal customers was not only anticipated, but was an essential part of the scheme, since there would have been no effect on stock prices and no likelihood of profiting from the leaked information without such circulation.

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