BofA shared nonpublic information with investors in India, whistleblower says
Summary
The whistleblower’s complaint, filed in June, also cited separate concerns about the bank’s conduct in the initial public offering of stock for SoftBank-backed retailer FirstCry and the rights offering for Carlyle-backed housing company PNB Housing Finance
Bank of America has opened an internal investigation following allegations that bankers in Asia shared nonpublic information with investors before the bank sold hundreds of millions of dollars of stock.
The whistleblower complaint alleged that bankers shared transaction details with investors before a stock sale in India was announced this spring, according to a copy of the complaint reviewed by The Wall Street Journal—potentially enabling the investors to engage in what is known on Wall Street as “front running."
Sharing nonpublic information ahead of a major sale of publicly traded stock is illegal in many countries because it can give the recipients an advantage over others. Investors with advance knowledge could “front run" bets on how shares would perform and profit if the market moved as predicted. The practice is illegal in India, and sharing nonpublic information about deals is prohibited under Bank of America’s policies.
Company records shared with the Journal showed that bankers in Asia contacted investors in March ahead of the deal cited in the whistleblower complaint, a roughly $200 million sale of stock for a subsidiary of Indian conglomerate Aditya Birla and financial firm Sun Life. People familiar with the sale said that bankers contacted investors via WhatsApp to share details of the transaction before it was announced.
A Bank of America spokesman said, “We take complaints seriously and thoroughly investigate them. At this time we have not found anything to support these allegations."
The whistleblower’s complaint, filed in June, also cited separate concerns about the bank’s conduct in a roughly $500 million initial public offering of stock for SoftBank-backed retailer FirstCry and a $300 million rights offering for Carlyle-backed housing company PNB Housing Finance, according to the complaint reviewed by the Journal.
The bank has retained British law firm Clifford Chance and Indian firm J. Sagar & Associates to investigate the whistleblower complaint, people familiar with the investigation said. Lawyers from the firms have recently interviewed senior and junior bankers involved in the transactions, the people said.
Company records reviewed by The Wall Street Journal show that ahead of the $200 million public sale of stock for Aditya Birla, bankers sought meetings with investors including quantitative trading firm Jane Street, Norges Bank and life-insurance company HDFC Life. The sale was announced on March 18 and completed around March 20.
Many of the firms declined to, or didn’t, respond, but HDFC Life met with bankers and company executives to discuss the terms of the stock sale around a week before the sale occurred, the people said. The meetings with HDFC Life were set up via WhatsApp, the people added.
The bankers also kept unofficial records of the communications and meetings that took place but didn’t report them on the official roadshow system for the deal, the people said.
Large trades of stock for corporate clients in India are a large source of revenue for Bank of America’s investment-banking franchise in Asia, bankers working there said.
Bankers on the $200 million transaction filed a memorandum in early March to Bank of America’s equity commitment council, which evaluates whether prospective deals are in line with the risk requirements of the bank. The bankers said, “there will be no deal roadshows or deal-related meetings related to this deal," according to a copy of the memorandum reviewed by the Journal.
Bank of America’s internal policies state that “deal roadshows or one-on-one deal related meetings must not be conducted" for public stock sales, according to the memorandum. The bank mandates a “cooling-off" period of two-to-four weeks if bankers speak for any reason to investors that might participate in the deal, according to a copy of the memorandum seen by the Journal.
Banks have paid fines to settle allegations that they improperly shared information with investors ahead of stock sales. In January, Morgan Stanley paid $249 million in the U.S. to settle criminal and regulatory investigations into allegations that some employees improperly shared information about clients’ stock sales.
Write to Alexander Saeedy at alexander.saeedy@wsj.com
