Whistleblower complaint against Sun Pharma confirmed by Indian regulators: report

Sun Pharma drew more unwanted attention this week when India’s stock regulators confirmed they are examining whistleblower allegations against the company.

“We have received the complaint against Sun Pharma and we are examining it,” Ajay Tyagi, chairman of Securities and Exchange Board of India (SEBI), told reporters after its board meeting on Wednesday, according to the Economic Times

Lacking definite word on whether the agency will open an investigation, Sun Pharma and its investors are being kept in suspense, and the uncertainty dragged down Sun's shares in Thursday trading.

India’s news agency PTI reported Nov. 30 that SEBI might reopen an insider trading case, settled last year, that centered on the company's acquisition of rival drugmaker Ranbaxy. Alleged irregularities in raising money overseas, among other damaging accusations, could also draw SEBI's scrutiny.

The insider trading case is pegged to Sun’s 2014 acquisition of Ranbaxy from Japan’s Daiichi Sankyo. Last year, the company, its managing director Dilip Shanghvi, his brother-in-law and Sun director Sudhir Valia, former Ranbaxy CEO Arun Sawhney and several other Daiichi and Sun execs paid SEBI Rs. 18 lakh ($25,500) to settle the charges without admitting wrongdoing.

After the possibility of another probe surfaced, Shanghvi picked up the phone with investors, trying to clear the air.

SEBI has not questioned the company about the whistleblower complaint, Shanghvi said, and he explained away the insider trading allegations as a timing problem rather than a serious infraction. The board approved the acquisition on a Sunday and decided not to announce it that day because the market was closed, he said.

However, citing a whistleblower email, Livemint reported earlier this month that the case centered on an alleged illegal gain of as much as Rs. 8,000 crore ($1.1 billion). The local news outlet said it couldn’t verify whether the email it had received was the same as the document sent to SEBI.

RELATED: Mismanagement allegations send Sun Pharma stock tumbling: What we know so far

Local reports have stated that SEBI has the power to reopen investigations of settled cases on various grounds, including evidence showing that the parties breached settlement terms.

The exact nature of alleged irregularities in Sun’s foreign fundraising activities is not clear. But an analyst with Australian brokerage house Macquarie noted that a little-known London-based investment management firm called Jermyn Capital assisted Sun in issuing $275 million worth of foreign currency convertible bonds (FCCBs) between 2004 and 2007.

SEBI has found that the Indian arm of Jermyn had links with Ketan Parekh and Dharmesh Doshi, two criminals notorious for Indian stock market manipulation in 2001.

“Starting with huge funds created from the initial FCCB of Sun Pharma, the group (Doshi, Valia, Sanghvi and Sun Pharma) started to acquire larger stakes in different companies by FCCB conversion, or money obtained from FCCB conversions,” Livemint quoted from the whistleblower email.

According to Livemint, the whistleblower accused Sun of manipulating stock prices of its acquisition targets directly or indirectly.

In response to Jermyn’s role in the bond issues, Shanghvi has said that J.P.Morgan served as lead manager and sole book runner for the FCCB transactions, and Jermyn served as co-manager.