WHITE COLLAR CRIMES IN VARIOUS PROFESSIONS

White collar crimes can be found in every industry and profession. Below enunciated here is
five major forms of white collar crime:

White Collar Crimes in:

1. Medical Profession

2. Education

3. Engineering& IT

4. Business

5. Society

1. Medical Profession:

White collar crimes in the medical profession is not a new phenomenon and has been into
existence from very beginning. Some of the offences which are considered as white collar
crime in the medical profession includes providing false medical certificates, illegal
abortions, selling of banned drugs and medicines to patients or chemists. Moreover, the
people in medical profession makes misleading claims through advertisements in newspapers
and television.

In Medical Profession White Collar Crime found are, illegal sale of alcohol and narcotics,
abortion [illegal at the time], illegal services to underworld criminals, fraudulent reports and
testimony in accident cases, extreme cases of unnecessary treatment, fake specialists,
restriction of competition, and fee-splitting. Fee-splitting is a violation of specific laws in
many states and a violation of the conditions of admission to the practice of medicine in all
...It has been reported that two-thirds of the surgeons in New York City split fees. ...

..... Insurance Frauds .... Mediclaim

..... Disability certificate .... Sold at cost...... Needed for MACT Cases

......Performing Unnecessary surgeries

......Performing surgeries that they are not suppose to ..... M B Mahajan’s Case

..... Illegal Abortion...... Conducting Sex determination test

..... Nexus between Doctors.... Pathologists.....Chemists.... Radiologists.....Specialists..

.....

2. Education:
Nowadays, education is only considered as a source of making money. Educational
institutions are least bothered about providing quality education to the students. In order to
make money for themselves, many educational institutions are engaged in the business of
providing fake educational certificates. In government institutions, the teaching staff are often
found to be indulged in corrupt activities. Teachers hardly teach their students in school and
often blackmail them to take private tuitions.

.... Fake degrees

.....Having distance learning centres, even when not permitted by regulations

.....Not recruiting qualified faculties

..... Not hiring senior faculties

..... Not Investing in infrastructural and resources

.....Not paying faculties

... Violating EPF/ Gratuity regulations

3. Engineering & IT

Sub-standard materials are being used for construction of buildings, roads and dams, which
not only endangers life of many citizens but also result into huge losses to the government.
Any illegal access of computer and internet services is known as Internet fraud. This kind of
fraud is very common these days and the most vulnerable to such incidents are the people
who use internet and mobile banking services.

4. Business:

Edwin Sutherland researched on large number of companies and corporations in the United
States and concluded that most of them were involved in illegal contracts, infringements
against copyrights and trademarks, unfair trade practices, bribery etc. these types of crimes
are generally committed by big businessmen and tycoons. The Sanathanam Committee
Report on Prevention of Corruption expressed great concern
about the problem of hoarding, profiteering and black marketing. It was also observed by the
committee that Indian businessmen build up secret stocks of foreign exchange abroad,
violating the Imports & Exports Laws.

5. Society :

White collar crimes are not only restricted to professions. Individuals, whether belonging to
higher class or middle class are also part and parcel of such crimes. E.g. Often individuals
misrepresent the details about their income in order to pay low income tax, which is
considered as a crime. Non-payment of taxes or non-compliance of tax paying policies is
referred to as Tax evasion. The tax evaders are either punished with huge fines or
imprisonment or both. Moreover, the offenders in certain cases try to hide the source and
destination of income received by them. This offence is known as Money Laundering and it
is done with the intention of making it seem that the money have come through legitimate
means.

6. Environment:

.........Violation in disposing Medical waste

........Indiscriminate exploitation of natural resources

......Contamination of water, air and soil

......Ship rebuilding...... water pollution

7. Consumer Crimes:

The category of consumer crimes includes, but is not limited to, false advertising,
commercial misrepresentations, price manipulation, and related criminal and/or unethical
behaviors. Few statistics address the entire group, as the white collar crime stakeholders who
would be the motive force behind such data collection tend to focus on narrower questions.
As in many other types of white collar crime, much of the data is also fragmented between
the civil, administrative, and criminal routes. However, existing data suggests that
enforcement of these matters is at least on the rise. For example, the number of federal
actions each year under the False Claims Act more than doubled from 1987 to 2012,43 and
the number of complaints to FTC’s Consumer Sentinel Network increased more than six-fold
from 2001 to 2012.44 Whether this is because of an increase in the underlying activities, an
increase in the likelihood of each victim reporting their victimization, or an increase in law
enforcement interest or ability to combat the activities is unknown.

8. Intellectual Property Crimes:

Intellectual property, as a concept, covers patent law, copyright law, trademark law, and
trade secret law. With that said, intellectual property crimes tend to be of one of two types:
Criminal versions of trademark dilution claims: Claims that an item creates the likelihood of
confusion as to the source of the product Criminal versions of copyright infringement laws:
Unsanctioned copying of creative material created by another.

a. Trademark-Related Claims Counterfeit Merchandise:

It can be difficult to decide which metrics are relevant when looking at data on counterfeit
merchandise. For example, the U.S. government seized $178 million in counterfeit and
pirated merchandise in 2011, 45 a 5% decrease from the year before and a 35% decrease
from 2008.46 One could use this figure to show that counterfeiting is decreasing. On the
other hand, that figure represents 24,792 seizures, which is the most on record (24% higher
than the year before and 4.5 times higher than the number of seizures in 2002). 47 Finally, the
number of these seizures that were deemed “consumer safety and critical technology”
seizures increased 44% over the year before, and the value of these seizures increased 41%
over the year before (to $60 million). These figures, however, only refer to those incidents of
counterfeiting that the federal government detected and stopped (typically at a port or
border). Many counterfeit goods either make it through these checkpoints or are
manufactured domestically, and are then sold throughout the nation. While hard figures on
such operations do not exist, the Organization of Economic Cooperation and Development
(OECD) estimated total U.S. losses to counterfeiting and piracy at over $250 billion.48
Counterfeit Pharmaceuticals While almost any counterfeit good may potentially pose a health
and safety risk, pharmaceutical counterfeiting is a topic of special concern. Recent studies
suggest that only 38% of online pharmacies are selling authentic versions of the medications
that they offer. 49 According to the most recent estimates, 6.8 million Americans are actively
using prescription drugs for non-medical reasons, 50 accounting for more than a quarter of all
illicit drug use in America. When it comes to illicit drugs, pharmaceuticals are second only to
marijuana in popularity. What is more, the relative figure seems unlikely to fluctuate much in
the future—the proportion of Americans over 12 who reported using prescription drugs for
nonmedical reasons in the past month has held fairly stable (vacillating between 2.4% and
2.9%) for as long as the current incarnation of the National Survey on Drug Use and Health
has existed (since 2002).52 At the same time, the health impact seems to be growing more
severe. Emergency room admissions for misuse of prescription drugs (especially opiate
painkillers53) more than doubled from 2004 to 2009.54 The rate of drug-related accidental
poisoning deaths has increased by 130% from 1999 to 2007. 55 The rate of drug-related
accidental poisoning deaths has increased by 130% from 1999 to 2007.56 Nearly ninety-four
percent of the unintentional poisoning cases that resulted in death during that period were
drug-related.57 Death by accidental poisoning related to drugs has become the second most
common type of unintentional injury resulting in death. 58 It is the thirteenth most common
cause of death (from any source) in the nation,59 responsible for 75% more deaths than
murder.60 It is also the tenth most common cause of nonfatal injuries overall. 61 The data
does not exist at this time to conclusively link the rise in physical harm caused by
prescription drugs to the prevalence of counterfeit medication (whether sold online or
otherwise). However, the fact that injuries are increasing at a time when use is holding steady
strongly suggests the influence of some outside factor, and the emergence and prevalence of
the counterfeit online pharmaceutical industry seems, at the very least, unlikely to be
completely unrelated.

b. Copyright-Related Claims Software, Movie, and Music Piracy:

The Business Software Alliance estimates that losses due to pirated software in 2011 reached
$9.8 billion for the U.S (with a piracy rate of 19%),62 with global losses reaching $63.4
billion and a global piracy rate of 42%.63 These figures indicate a steady upward climb from
previous years (global piracy, for example, accounted for $30 billion in 2003). However, it is
worth noting that the high dollar figures cited do not necessarily translate into lost sales. It is
not a given that, but for lax enforcement, the industry would have made an extra $63.4 billion
in 2011—many of the infringers would likely not have purchased a copy of the software at
retail price. Additionally, it is difficult to characterize these figures as representing damages,
as it is hard to articulate a type of damage unsanctioned copies impose other than lost sales
(since creating a copy of a program does nothing to diminish the original). There are,
however, some known cases of malware being hidden in pirated copies of software. Whether
these isolated incidents constitute a trend, or how much impact they have had, is a topic for
future research. The movie and music industries have similar hurdles to surmount when
trying to describe the size and impact of piracy in their sectors. However, the Motion Picture
Association of America cites figures of $22 billion damage to U.S. industries in 2005 due to
film piracy (or, possibly, $6.1 billion),64 and the Recording Industry Association of America
cites figures of $12.5 billion lost annually.65

7. Computer Crimes:

The use of technology to facilitate or initiate consumer fraud is now so commonplace that
50% of all consumer frauds reported to the FTC in 2012 were web or e-mail based.89 The
average annual cost per victim (including direct, indirect, and opportunity costs) of
cybercrime targeting organizational victims in the United States was $11.6 million in 2012
(up 26% from the year before).90 While any estimate for overall losses stemming from
clandestine activity is necessarily hindered by a lack of data, best estimates currently put
annual net U.S. losses attributable to cybercrime in the neighborhood of $100 billion.91
Additionally, the Verizon Incident Response Team handled more than 47,000 security
incidents, representing more than 44 million compromised files, in 2012. Fifty-five percent of
those incidents ultimately resolved back to organized criminal organizations, and 21%
resolved back to state-affiliated espionage. Thirty-seven percent of these breaches affected
financial organizations, and 24% affected retail establishments. Seventy-five percent were
driven by financial motives.92 JP Morgan’s 2012 Cyber Source Online Fraud Report
estimates that $3.4 billion was lost to Internet fraud. According to their 13th annual survey,
“merchants reported losing an average of 1.0% of total online revenue to fraud.” It is stated
that international orders are more risky than domestic orders. Merchants reported the
international fraud

2. Identity Theft

A review of the number of major breaches of security in the Sophos 2013 annual report of
hacked organizations shows some alarming findings: In 2013 alone, LinkedIn lost 6.5 million
passwords, eHarmony 1.5 million, Formspring 420,000, Yahoo Voices 500,000, IEEE the
world’s largest professional association for the advancement of technology lost the user
names and passwords of more than 100,000 unique users, all to hackers.167 The potential for
exploitation of this personal information for identity theft is impossible to calculate, but is
certainly vast. If the average cost of a data breach is (as some research suggests) $194 per
record, 168 then we are potentially looking at something in the neighborhood of $1.7 billion
in damages arising from the Sophos-identified incidents. While identity theft would doubtless
continue to be a problem even without extensive corporate data-gathering, creating such
complete profiles of consumers and keeping so many files in one place makes a tempting and
lucrative target for identity thieves.

CONCLUSION

We realize that the discussion in this Article has covered a long list of topics. However, all of
the issues discussed are in some material way, related directly to what most observers would
call white collar crime. The challenges of even defining the term white collar crime has
eluded the academic and law enforcement communities for seventy-five years since it was
first coined in 1939, and the debate continues to this day. Resolving this definitional debate is
the first step in obtaining some realistic measure of the extent of the damage being done to
our society by this area of criminal activity. Complicating the task of defining white collar
crime is its rapidly evolving nature. As computers and the Internet become more and more an
integral part of everyday life, the ability to commit widespread financial crimes victimizing
vast numbers of people and on a global basis, increases at an alarming rate. Further
complicating the task is the way these same tools have changed the typical image of the white
collar criminal from the highly placed executive heading a large company, a banker in a
position to embezzle large amounts of cash or a politician with a political machine to assist in
their illicit endeavors, to just about anyone with the computer skills and basic knowledge
needed to engineer identity theft, hack into a computer system, perpetrate a mortgage fraud or
traffic massive quantities of child porn on the Internet. Along with the evolution of these
electronic tools also comes a new and challenging field of determining exactly how to
effectively investigate and prosecute these crimes. Law enforcement and prosecutorial
personnel have to learn new skills in identifying, seizing and processing electronic and digital
evidence. The ability to encrypt and hide potentially incriminating evidence is increasing the
number of issues involving right to privacy, self incrimination, freedom of speech, etc., that
the legal community will have to struggle with in the future and all while this evolving field
of criminality is creating more financial damage and victimizing more people than arguably,
any other area of crime in history. Conclusions are almost impossible to draw, only
inferences as to the immensity of the challenges for the future of law enforcement and the
legal community in addressing this rapidly evolving and extremely challenging field of
criminality.

WHITE COLLAR CRIMES IN INDIA The reason for the recent enormous increase in white
collar crime in India is the fast developing economy and industrial growth of the country. The
post independence period in India led to an era of welfare activities which needed regulatory
measures on the part of government. It is the contravention of such regulatory measures
which generally gives rise to a white collar crime.

The Santhanam Committee Report showed a picture of white collar crimes committed by
persons belonging to high status. The report of the committee stated that the big industrialists,
businessmen, government officers are responsible for white collar crime in India.
After the independence, the first case of white collar crime was Mundhra’s case. India’s first
Prime Minister Jawaharlal Nehru set up a commission headed by Justice M.C. Chagla to
investigate the matter. Justice Chagla concluded that Mundhra had sold imaginary shares to
Life Insurance Corporation (LIC) by defrauding the insurance company to the tune of INR
1.26 Crore. Mundhra was sentenced to 22 years in prison.

Another incident took place in the beginning of 21st century was the Satyam Scam. This
scam involved the fraud of INR 7,000/- Crores. Few years back, CBI arrested many
Trinamool Congress leaders for the alleged involvement in INR 24.60 billion chit fund scam.

After the rise of the Indian economy, many companies from the private sector and the public
enterprise has been included in the corporate frauds and scandals. It is because of all these
scams the common man is scared to invest in the equity market.

Corruption is one of the worst form of crimes in India. It has been into existence for many
centuries. Even Chanakya has mentioned the various forms of corruption during his time.
Many political parties have promised to eradicate corruption, however, the offenders in these
types of crimes are usually the government officials or the politicians itself. In between 2010
to 2012 Central Bureau of Investigation has registered over 1,450 cases of alleged corruption
under the Prevention of Corruption Act, 1988.

Insider Trading

“Insider trading” is a term subject to many definitions and connotations and it encompasses
both legal and prohibited activity. Insider trading takes place legally every day, when
corporate insiders—officers, directors, or employees—buy or sell stock in their own
companies within the confines of company policy and the regulations governing this trading.

The type of insider trading we discuss here is the illegal variety that most of us think of when
we hear the term, the type of insider trading that achieved widespread notoriety in the 1980s
with the SEC civil cases and the United States Department of Justice criminal cases against
Michael Milken and Ivan Boesky and which inspired even Hollywood’s imagination with the
movie “Wall Street.” It is the trading that takes place when those privileged with confident
believed to have contributed to the crash. The 1934 act addressed insider trading directly
through Section 16(b) and indirectly through Section 10(b). Section 16(b) prohibits...any
profits realized in any period less than six months by corporate insiders in their own
corporation’s stock, except in very limited circumstances. It applies only to directors or
officers of the corporation and those holding greater than 10% of the stock and is designed to
prevent insider trading by those most likely to be privy to important corporate information.
Section10(b)...makes it unlawful for any person “to use or employ, in connection with the
purchase or sale of any security registered on a national securities market or any security not
so registered, any manipulative or deceptive device or contrivance in contravention of such
rules and regulations as the [SEC] may prescribe” ... The breadth of the anti-fraud provisions
leaves much room for interpretation and the flexibility to meet new schemes and contrivances
head on. Moral imperatives have driven the development of insider trading laws in the United
States. In 1961, in the case of In re Cady Roberts & Co., the Commission held that a broker
who traded while in the possession of non public information he received from a company
director violated [the law] ... Direct evidence of insider trading is rare. There are no smoking
guns or physical evidence that can be scientifically linked to a perpetrator. Unless the insider
trader confesses the knowledge in some admissible form, evidence is almost entirely
circumstantial. The investigation of the case and the proof presented to the fact-finder is a
matter of putting together pieces of a puzzle. It requires examining inherently innocuous
events—meetings in restaurants, ...telephone calls, relationships between people, trading
patterns—and drawing reasonable inferences based on the timing and surrounding
circumstances to lead to the conclusion that the defendant bought or sold stock with the
benefit of inside information wrongfully obtained1.

information about important events use the special advantage of the knowledge to reap
profits or avoid losses on the stock market, to the detriment ...of the typical investors who buy
or sell their stock without the advantage of “insider” information. The American notion that
insider trading is wrong was well-established long before the passage of the federal securities
laws. In 1909, the United States Supreme Court held that a director of a corporation who
knew that the value of the stock in his company was about to skyrocket committed fraud
when he brought company stock from an outsider without disclosing what he knew. But the
condemnation is not universal, even in the United States.

After the United States stock market crash of 1929, Congress enacted the Securities Act of
1933 and the Securities Act of 1934, aimed at controlling the abuses.

Insider Trading Regulations in India

Insider trading is the buying or selling of a security by someone who has

access to material non-public information about the security. Insider trading
can be illegal or legal depending on when the insider makes the trade. It is
illegal when the material information is still non-public.

The term ‘insider’ has been defined under Regulation 2(e) of SEBI (Prohibition of Insider
Trading) Regulations, 1992. Basically, the term ‘insider’ can be classified into three broad
categories, which are:

 Persons who are connected to the company,

 Persons who were connected with the company,
 Persons who are deemed to be connected to the company.

In order to become an insider a person has to fulfil three elements, viz;

 The person should be a natural person or legal entity;

1
Source: Thomas C. Newkirk and Melissa A. Robertson, Insider Trading—A U.S. Perspective. Paper presented
at the 16th International Symposium on Economic Crime. Jesus College, Cambridge University, England,
September 19, 1998 (http:// www.sec.gov/news/speech/speecharchive/1998/spch221.htm).ial
  The person should be connected person or deemed to be connected;
 Acquisition of the unpublished price sensitive information by virtue of such
connection.

Unpublished Price Sensitive Information

Unpublished price sensitive information means any information which refers to the internal
matters of the company and ordinarily it is not disclosed by the company in the regular course
of the business.

Insider Trading and the Securities Exchange Board of India

Insider trading in India is basically determined by SEBI laws which govern the whole trading
in national stock exchange or Bombay stock exchange. The main aim of this law is that to
ensure traders that no one is gained by trading on ‘insider’ or ‘unpublished’ information-
information that is not made public. Another aim of this law is to make the information
available to all the participants. The enforcement of insider trading laws increases the market
liquidity and decreases the cost of equity. Insider trading laws are found in developed
countries where strong trading regulations are adopted. The main aim of government in the
enactment of insider trading laws is that all the participants in the market have the same
information. When the Indian economy was liberalized and security market was open to
foreign institutional investors, common investors aim to get quick returns in short period of
time.

In India, SEBI (Insider Trading) Regulation, 1992 framed under the Section 11 of the SEBI
Act, 1992 intends to curb and prevent the menace of insider trading in securities. An insider
is a person who is an accepted member of a group or organization who has special knowledge
regarding his firm.

Evolution

Bombay stock exchange was established in 1875 and since then Indian securities markets
started functioning. Before the enactment of SEBI Act 1992, there were two acts namely
Capital Issues Control Act,1947 and Securities Contract Regulation Act,1956. After
independence, there was no such as act which governed the insider trading practices in India.

Penalties for committing insider trading

The penalties and punishments for committing insider trading have been defined under
Chapter IV-A of the SEBI Act. The penalties have been discussed below according to the
SEBI (Amendment) Act, 2002.

 Section 15(G)(i)– if an insider either on its own or on behalf of any person has
dealt on behalf of his company any unpublished information then he may be fined
with RS. 25 crores or 3 times the profit made, whichever is higher.
 Section 15G(ii)– if an insider has given any price sensitive information then he
may be fined up to RS. 25 crores or 3 times the profit made.
 Section 15G(iii)– if an insider has procured any other person to deal in securities
of anybody corporate on basis of published information then he may be fined up to
RS. 25 crores or 3 times the profit made which is higher.

Case Laws

Hindustan Lever Limited v. SEBI (1996)

This case mainly concerns the purchase of 8 lakh shares by HLL of BBLIL from the Unit
Trust of India on March 25, 1996. This purchase was made barely two weeks prior to a public
announcement for a proposed merger of HLL and BBLIL. Upon investigation, SEBI found
that HLL was an insider at the time of purchase.

SEBI upon investigation found that at the time of purchase of shares of BBLIL from UTI,
HLL was an insider under Section 2(e) of the 1992 Regulations. HLL filed an appeal before
the appellate authority asking on what grounds they can be termed as an insider. But after
hearing on the evidence of HLL, the authority appreciated the evidence but it was not enough
to prove it. Consequently, the appellate authority found the SEBI investigations right. The
matter is currently pending before the Supreme Court.

TISCO case (1992)

In this case, the profit of TISCO for the first half of the financial year 1992-93 felt to Rs.
50.22 crore in comparison to the profit of Rs. 278.16 crore for the financial year 1991-92.
Before the announcement of the half-yearly results, there was intense activity in the trading
of share between October 22, 1992, and October 29, 1992. However, the SENSEX saw a
decline of 8.3% during the same period. The insiders who had the knowledge of the same had
manipulated the market to make short sales. Small investors were hit badly. Due to the
absence of insider trading regulations in India, it was not possible to investigate the case.

DSQ Holdings Ltd. v. SEBI (1994)

DSQ biotech ltd. (DSQB) was originally promoted by KND engineering and technologies
ltd., jointly with Tamil Nadu industrial development corp. DSQ Holdings Ltd. Is a same
promoter group company of DSQB. The board of directors held a meeting on 30 July 1994
considered rights issue and same was communicated to the stock market. The purpose of
sending information to the public was to properly disseminate it.

The erstwhile management of DSQB entered into an agreement in April 1994 with DSQH
Ltd. promoted by Shri Dinesh Dalmia (DD) group. Through the agreement, the DSQ
Holdings Ltd. (DSQH) purchased 44, 98,995 shares of DSQB at the rate of Rs. 15.94 per
share from the erstwhile promoters. Thereafter DSQ group made an offer as per clauses 40A
and 40B of the Listing Agreement to acquire a further 17,66,400 shares (20% of the paid-up
capital of the company) during the last quarter of 1994. The scrip of DSQB prior to the
takeover of the company by the DSQ group in April 1994 was not actively traded on the
exchanges with the price hovering in the region between Rs.12 and Rs.18 during most part of
1993 and also during the first half of 1994. The scrip witnessed considerable movement both
in terms of price and volume immediately after the DSQ group took over the company.

A detailed investigation was carried out by SEBI. It was found that there was a steep jump in
shares of DSQB from RS. 20 to RS. 92. From the investigation of SEBI, the DSQB failed to
give the actual proof of dispatch of AGM notice. Regulation 2(k)(iii) of the SEBI
(Prohibition of Insider Trading) Regulations, 1992 considers the information regarding the
issue of shares by way of public, rights, bonus etc. as unpublished price sensitive information.
In this case, it was clear that DSQB made an advantage over other investors. So DSQH was a
‘connected person’ under regulation 2(c) of SEBI Insider trading regulations.

Role and Power of SEBI in curbing Insider Trading

SEBI is established as a statutory body which works under the framework of Securities and
Exchange Board of India, 1992. The various roles and power of SEBI have been discussed
under Section 11 of the SEBI Act,1992.

 The main duty of SEBI is to protect the safeguard of investors and ensure proper
trading.
 The main power of SEBI is that if any person has violated the provisions of this
Act then SEBI set up an enquiry committee.
 In order to investigate SEBI may appoint officers who look after the books and
records of insider and other connected persons.
 It is the duty of SEBI to give a reasonable notice to the insider before starting the
investigation.
  The board can also appoint an auditor who may inspect the books of accounts and
affairs of an insider.
 It is the duty of insider to provide necessary documents to the investigating
authority. However, it has neither any power to examine on oath, nor does it have
the same power as are vested in a civil court under the Code of Civil
Procedure,1908 while trying a suit.
 After all the investigations, the officer has to submit the report within 1 month as
per SEBI 1992 regulations. It also depends on the investigating officer to take
longer time if he funds that the work could not be completed within the stipulated
time.
 After the final report submission, SEBI has to communicate the findings to the
insider and issue a show cause to the insider or other person within 21 days of the
receipt of the communication.
 The person to whom the finding has been communicated has to give the reply to
the notice within 21 days of receiving the notice. The Expert Group (headed by
Justice M.H. Kania) constituted by the SEBI in August, 2004, recommended in its
Report that, Section ll(2)(i) of SEBI Act be amended to empower SEBI to call for
information from professionals, subject to the professional’s rights (for not parting
with the privileged information in their possession).
 Any person who feels aggrieved by the directions of the SEBI can appeal to the
Securities Appellate Tribunal (Regulation 15).
 An appeal can be filed within 45 days of the receipt of the copy of the order from
the date on which appeal had been filed. SEBI (insider trading) regulations, 1992
consists of three chapters and twelve regulations.

An insider is a connected person who is connected to the company directly or indirectly with
the company. The term ‘connected person’ is an important concept for defining the charge of
insider trading. It represents a person who is a director of a listed company or is an officer or
an employee of a listed company. Connected persons have access to the unpublished price
sensitive information of the company. It also includes a person who has been connected to the
company prior to 6 months to the implementation of insider trading regulations.

There are various regulations under SEBI Regulations, 1992 that defines the term ‘connected
persons’. They are as follows:

 Regulation 2(h)(i)- an officer or employee of the same company under

subsection(1b) of Section 370(1b) or subsection (11) of Section 372 of the
Companies Act, 1956 or subsection (g) of Section 2 of the MRTP Act,1969.
 Regulation 2(h)(ii)
 Regulation 2(h)(iii)
  Regulation 2(h)(iv)- a member of the board of directors
 Regulation 2(h)(v)- an official or an employee of a self-regulatory organisation
 Regulation 2(h)(vi)- any relative of any of the aforementioned persons
 Regulation 2(h)(viii)- a relative of the connected person
 Regulation 2(h)(ix)- a concern, firm, trust, Hindu undivided family

Why is the rate of investigation of insider trading lower in India?

Over the last two decades, Indian markets have been criticized because of the failure to
investigate and prosecute the convicted person. Even if the person is caught the punishment
and penalty is so low that the regulations have lost its effects. Below is the data which shows
the number of insider trading investigations and completed between 2010-15:

Year Investigations taken up Investigations completed

2010-11 28 15

2011-12 24 21

2012-13 11 14

2013-14 13 13

2014-15 10 15

The reason behind the low rate of successful investigation and convictions could be due to
these factors which are discussed below:

 SEBI was only recently granted the power to call for phone records of suspects
under investigation: As we know insider trading is not easy to determine and also
SEBI has not been empowered with the basic investigation tools.
 SEBI does not have the power to wiretap phone calls: As in the US where the
authority can obtain the phone call records but in India, it cannot be done so.
 SEBI has failed to utilize its power and penal provisions: SEBI in many ways
failed to utilize its power and has also asked the government to give additional
powers to the body.
 SEBI does not have the appropriate human resource to conduct a proper
investigation: SEBI has nearly 800 old employees and does not have proper human
resource department.
In developed countries like USA or UK, there is severe punishment for insider trading. In
European union, there is 4 years term jail for insider trading.

Conclusion

As I have discussed above that insider trading offences are defined under Section 11 of SEBI
Act,1992. It has the power to investigate on matters and look upon the books of the firm.
Despite the regulations, SEBI has failed in many investigations because of lack of various
factors SEBI has the power to initiate criminal prosecution under Section 24 of SEBI Act
1992. There was no such provision before the enactment of SEBI Act but after the various
committees had submitted their report to the SEBI (Insider Trading Regulation) Act, 1992
was enacted.

In other developed countries, there is strong legislation regarding the insider trading but in
India, though there is legislation under SEBI Act, 1992 but the rate of investigations is very
low because of many factors and the government has to look upon the matter and pass more
strong legislation to curb the insider trading practices.