Three Indian issuers of equity — Aditya Birla Sunlife AMC, Softbank-backed FirstCry and Carlyle-backed PNB Housing Finance Company — have been sucked into a front-running scandal involving investment bankers linked to a Bank of America outfit who shared non-public information with investors before the bank sold stocks worth hundreds of millions of dollars.

Bank of America has opened an internal investigation following a whistleblower complaint made in June.

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.”

The WSJ added that the whistleblower’s complaint was shared in June with the Securities and Exchange Board of India (Sebi) and the head of investment banking for Bank of America in Asia.

Front-running is an illegal practice, where an entity trades based on advanced
information from a stock broker or analyst before the information has been made available to clients.

The WSJ report claimed that investment bankers contacted investors through WhatsApp to share transaction details before the share sale announcement was made in India. It alleged that the stock sale of $200 million pertained to a subsidiary of the Aditya Birla group and financial firm Sun Life (Aditya Birla Sun Life AMC).

Other complaints reportedly raised by the whistleblower pertained to around $500 million IPO for SoftBank-backed FirstCry and a $300 million rights offering for PNB Housing Finance.

The WSJ report alleged that company records showed that ahead of the $200 million public sale of stock for Aditya Birla Sun Life AMC, the investment 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.

On March 18, Aditya Birla Capital and Sun Life (India) AMC Investments Inc promoters of the fund house had approved the sale of 2.01 crore equity shares of the company, representing 7 per cent of its total issued and paid up equity share capital.

It also included an additional option to sell up to 1.28 crore shares, equivalent to a 4.47 per cent stake.

The oversubscription option represented 11.47 per cent of the total issued and paid-up equity share capital. The sale was conducted through an offer for sale (OFS).

A Bank of America spokesperson told Reuters it had found no evidence to support these claims.

“We take complaints seriously and thoroughly investigate them,” the spokesperson said. “In instances where we conclude there has been inappropriate behaviour, we take disciplinary action.”