India’s market regulator fined Reliance and two of its officials Monday 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 itself reported on the then-impending deal in March, which sent shares of the group company soaring. (Some Inside Baseball: The Financial Times broke the news in March that Meta, then called Facebook, was well into talks to make a billion-dollar investment in Jio Platforms, the digital unit of Reliance Industries. The news quickly spread. reinforced by various outlets. )
The market regulator believes that it was Reliance’s “duty” to provide “on its own merit” through the exchanges – or otherwise – when it learned that the information was about to be published.
“One of the problems is that information that the company wanted to keep secret until it was made public clearly failed to achieve that goal,” the market regulator said. “Further, when the bits of UPSI (Unpublished Price Sensitive Information) that subsequently became selectively available, the company abdicated its responsibility to verify and clean up the unverified information circulating.”
Reliance did not comment on the Financial Times and other media outlets at the time, although FT had characterized its request for comment as “immediate”, suggesting it may not have given Reliance enough time to assess how it should respond. (More about baseball: It’s generally unclear how much time a company needs before it can comment. Usually, if it’s not an announcement of a big deal, a few hours is considered enough. For news about a Jio-Facebook deal, I’d say a working day is more than enough.)
But the market regulator does not accept that.
“The other predicament of the notifications present is that they also couldn’t have cleared up the rumor just because the agreement had yet to be signed, had yet to be approved by the company’s board of directors and was not yet final. But here too it is difficult to convince that the company would not respond to rumors until the transactions were final.
“If you just look at the announcements of companies on the exchanges, there are a plethora of announcements where only the MoU has been put in place, or where term sheets have been signed, or other acquisitions are scouted.”
However, the fine for Reliance and its compliance officers is a small amount (about $38,500). The market regulator said in its statement that Reliance and its officials have denied the allegations.
The post nevertheless gives us a good overview of how the two companies made an investment. Facebook and Reliance began the “initial discussion to investigate a potential 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 headquarters in Menlo Park. Law firm Davis Polk arrived on November 26, Morgan Stanley arrived in January. Negotiations on the deal began in February.