India’s market regulator on Monday fined Reliance and two of its executives for failing to properly disclose Facebook’s $5.7 billion investment in Jio Platforms in April 2020.
The Securities and Exchange Board of India said the media reported on the then impending deal in March itself, which drove shares of the group company higher. (Some inside baseball: Financial Times reported in March that Meta, then called Facebook, was in late-stage talks to invest billions in Jio Platforms, the digital unit of Reliance Industries. News spread quickly. amplified by multiple outlets. .)
The market regulator is of the view that it was Reliance’s responsibility to provide “the necessary clarifications on its own” through the exchanges – or by other means – when it learned that the information was about to be released.
“One of the problems is that the information the company wanted to keep secret until it was made public clearly failed to do that,” the market regulator said. “Furthermore, when the material from UPSI (unpublished price-sensitive information) that subsequently became selectively available, the company abdicated its responsibility to verify and reveal the unverified information circulating.”
Reliance did not comment to the Financial Times and other media at the time, although FT called its request for comment “immediate”, suggesting it might not have given Reliance enough time to assess how he should react. (Inside Baseball: It’s not usually known how long a company needs before they can comment. Usually, if it’s not a major announcement, a few hours is considered adequate. For a sort of Jio-Facebook topicality, I would say a business day is more than enough.)
But the market regulator is not buying that.
“The other problem that the notaries present is that they could not have clarified the rumor on their own, because the agreement was not yet signed, had not yet been approved by the board of directors of the company and that it was not yet final. However, here too, it is difficult to be convinced that the company would only respond to the rumors after the transactions were finalized,” he said.
“On a simple reading of announcements made by companies on the stock exchange, there is a plethora of announcements where only the memorandum of understanding has been reached, or where a term sheet has been signed, or other acquisitions are sought. “
The fine imposed on Reliance and its compliance officers, however, is minimal (about $38,500). The market regulator says in its notice that Reliance and its executives have denied the allegations.
The review nevertheless gives us a good insight into how the two companies have put together an investment. Facebook and Reliance began an “initial discussion to explore a potential transaction” on September 1, 2019. In late October, Facebook’s corporate development team visited Reliance’s offices. A month later, Reliance executives visited Facebook’s headquarters in Menlo Park. The law firm Davis Polk was put on hold on November 26, Morgan Stanley arrived on the scene in January. Negotiations on the terms of the agreement began in February.