Acknowledging the crucial role played by whistleblowers in helping SEBI identify and catch entities engaged in insider trading, the regulator has proposed new norms for incentivizing and protecting the informant.
Accordingly, the paper recommends norms to help maintain the anonymity of the whistleblower and sets rules in place to prevent him from being penalized. The paper also proposes incentivizing the informant with monetary reward if it leads to recovery of at least Rs. 5 crore by SEBI.
As per the proposed amendments to Prohibition of Insider Trading (PIT) regulations, the informant would need to submit the voluntary information disclosure form (VIDF) to SEBI sharing complete details about the insider trading activity to SEBI. The informant can either submit the information anonymously through a practicing advocate or by himself.
A separate body (Office of informant protection (‘OIP’)) will act as intermediary between the SEBI board and the informant. The body will verify the authenticity of the information provided by the whistleblower and calculate and disburse the monetary reward to the informant. SEBI will try to maintain the confidentiality of the informant at all costs unless his presence is required during the proceedings. The OIP will also be responsible for maintaining the confidentiality of the informant from both the SEBI board and the accused. The OIP will establish a hotline to facilitate the submission of information to SEBI.
The information received by the OIP will be processed by respective SEBI departments. If the information leads to recovery of greater than Rs. 5 crore, then the informant will receive a reward of 10% of the monies collected up to Rs. 1 crore. SEBI may also give an interim reward up to Rs. 10 lakh to the informant at the time of issuing final order. The reward will be paid from the investor protection and education fund (IPEF) as all monies removed from the case, will be deposited in IPEF too.
SEBI has also issued guidelines to prevent harassment of the whistleblower. In addition, to dissuade frivolous complaints by informants, SEBI has laid down penalties for such complaints.
Moreover, to encourage the guilty parties to confess, the guidelines allow SEBI to show some leniency in terms of prosecuting confessors.
