India’s market regulator on Monday fined Reliance and two of its senior 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 media reported back in March on the then forthcoming deal, which boosted the group’s shares. (Some baseball insiders: The Financial Times broke the news in March that Meta, then called Facebook, was in advanced stages of discussions to make a billion-dollar investment in Jio Platforms, Reliance Industries’ digital unit. The news was quickly reinforced by several outlets.)
The market regulator believes that when it learned the information was to be made public, it was “on to” Reliance, through the exchanges – or otherwise – “to provide adequate information itself”.
“One of the problems is that information that the company wanted to keep secret until it was made public clearly failed to do so,” the market regulator said. “Furthermore, as the pieces of UPSI (unpublished price-sensitive information) then became selectively available, the company waived its responsibility to review and clean up the unverified information that was floating around.”
Reliance did not comment to the Financial Times or other media at the time, although FT described its request for comment as “imminent,” suggesting Reliance may not have existed enough time to judge how it should react. (Inside Baseball: It’s generally unclear how much time a company needs before commenting. Usually, unless it’s a big deal announcement, a couple of hours is considered reasonable. For a message of sorts from Jio Facebook deal I would say one business day is more than enough.)
But the market surveillance does not buy that.
“The other dilemma of the present communications is that they could not have cleared the rumor either as the agreement was not yet signed, not yet approved by the company’s board of directors and not yet final. But again, it’s hard to convince that the company would only respond to rumors after the transactions were completed,” it said.
“In just perusing the announcements made by companies on the stock exchanges, there is a plethora of announcements where only the MoU has been entered or where term sheets have been signed or other acquisitions are under consideration.”
However, the fine for Reliance and its compliance officers is a tiny amount (about $38,500). The market regulator says in its statement that Reliance and its officials have denied the allegations.
The release still gives us a good look at how the two companies put an investment together. Facebook and Reliance began “initial discussions to explore a possible transaction” on September 1, 2019. In late October, Facebook’s business development team visited Reliance’s offices. A month later, Reliance executives visited Facebook’s Menlo Park headquarters. Davis Polk law firm got involved on November 26, Morgan Stanley came on the scene in January. Negotiations on the terms of the deal began in February.