A series of raids by India’s market regulator, investigating whether corporate announcements were prematurely leaked by market participants in social media chatrooms, were the largest it has conducted.
But despite the scale of the action, the Securities and Exchange Board of India (SEBI) will likely face several tough legal challenges in any prosecutions, according to four lawyers, including two former officials of the regulator.
Dozens of SEBI officials raided offices and homes of brokers on Dec 22, seizing mobile phones and laptops, one regulatory source told Reuters. As many as 30 brokers were targeted in the action, according to local media.
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SEBI has broad search-and-seizure powers that enable it to seize “books, registers, other documents” and records of anyone associated with securities markets, according to the regulations laid out in the official act that governs the regulator’s activity. Those powers would likely allow the regulator to withstand in court any challenge to the seizure of electronic gadgets, the lawyers interviewed by Reuters said.
But whether SEBI has legal rights to get into individual social media accounts does not appear to have been established, the lawyers said. They said they were not aware of any explicit law that gives SEBI power to access social media accounts or compel users to provide passwords.
That would mean that SEBI would have to make a case that such accounts should be considered “books, registers, other documents” and records, they said. SEBI did not respond to emailed requests for comment.
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‘Can prosecute’
A senior official at SEBI expressed confidence that the regulator would be able to successfully prosecute any cases that came out of the investigation.
“We have enough powers to proceed,” the official, who requested anonymity, told Reuters. SEBI was “testing if the powers given to us can stand the scrutiny of law. If not, we will again ask for amendment to the regulations and laws. We will strengthen it.”
SEBI chairman Ajay Tyagi, on Thursday said that pursuing suspected illegal activity taking place on social media was new territory for the regulator.
Lawyers interviewed by Reuters said defendants would likely counter efforts by SEBI to access their social media accounts on privacy grounds. Reuters was unable to reach lawyers representing brokers targeted in the raids. “An individual who is involved could challenge the access to his or her social media as a constitutional breach of privacy,” said Sandeep Parekh, a partner with Finsec Law Advisors, and former head of enforcement at SEBI.
In a landmark judgment, India’s top court unanimously ruled in August that individual privacy is a fundamental right, which lawyers said would have broad legal implications for Indians.