India's market regulator fined Reliance and two of its officers on Monday for not properly disclosing Facebook's $5.7 billion investment into Jio Platforms in April 2020.
The Securities and Exchange Board of India said that media had reported about the then-impending deal in March itself, which prompted the shares of the group company to rise. (Some inside baseball: Financial Times broke the news in March that Meta, then called Facebook, was in advanced stages of talks to make a multibillion investment in Jio Platforms, the digital unit of Reliance Industries. The news was quickly amplified by several outlets.)
The market regulator is of the view that it was "incumbent" on Reliance to provide "due clarification on its own" through the stock exchanges -- or other means -- when it learned that the information was about to be published.
"One of the issues is that information that the company wanted to keep enveloped in secrecy until made pubic, clearly failed in that objective," the market regulator said. "Further, when the bits of UPSI (unpublished price-sensitive information) that then became selectively available the company abdicated its responsibility to verify and come clean on the unverified information that was floating around."
Reliance did not comment to Financial Times and other outlets at the time, though FT had characterized its request for comment as "immediate," suggesting that it may not have given Reliance enough time to assess how it should respond. (More inside baseball: It's unclear generally how much time a company needs before it can comment. Usually, if it's not a big deal announcement, a few hours is considered adequate. For a Jio-Facebook deal kind of news, I would say a business day is more than enough.)
But the market regulator isn't buying that.
"The other predicament the noticees present are that they could not have clarified the rumour on its own too because the agreement was yet to signed, yet to be approved by the Board of the Company and that it was not yet final. However, here too it is hard to be convinced that the company would respond to rumours only after finality of transactions," it said.
"On a mere perusal of the announcements made by companies on the stock exchanges there are plethora of announcements where only the MoU has been entered, or where term sheets have been signed, or other acquisition are being scouted."
The fine on Reliance and its compliance officers is a tiny amount (about $38,500), however. The market regulator says on its notice that Reliance and its officers have denied the allegations.
The notice nonetheless gives us a good overview of how the two companies put together an investment. Facebook and Reliance began "initial discussion to explore a potential transaction" on September 1, 2019. In late October, Facebook's corporate development team visited Reliance's offices. A month later, Reliance executives visited Facebook's Menlo Park headquarters. Law firm Davis Polk got looped in on November 26, Morgan Stanley arrived on the scene in January. Negotiation on terms of the deal began in February.