Apollo had made efforts to acquire Cooper Tire at the end of 2012.
At 9:36 am the next day, Ahmed purchased 2,000 shares of Cooper Tire through Rakitfi Holdings LLC.
Through the next few weeks, Ahmed would go on to create a $2.5-million position in Cooper Tire, making his last purchase at 9:57 am on June 6, 2013.
Six days later, Apollo Tyres announced it would buy out Cooper in a multi-billion dollar deal.
The deal had been in the making for long. Apollo had made efforts to acquire Cooper Tire at the end of 2012. It had made several offers, all of which Cooper had turned down.
Finally, on April 4, 2013, it proposed it would buy out all the common stock of the company at $35 a share. At that time, the stock was trading at $24.53. Cooper got back to Apollo in five days, saying it could begin due diligence.
This is where Kanodia is said to have picked up on the deal. S Kanodia, Amit kanodia's wife and the general counsel of Apollo, was directly involved in the deal, according to information in a US Securities and Exchange Commission (SEC) order dated April 2, 2014. The order also had other details of how alleged insider trading transactions were carried out.
S Kanodia was based out of the US when she was hired by Apollo. She continued to be in the US as part of the Apollo team, while it was being negotiated. After the deal was announced, she was based out of Apollo's India office.
On May 6, Kanodia called Ahmed again. This followed financial advisors of the two companies meeting and discussing the merger.
Around 35 minutes later, at 9:31 am, Ahmed's Rakitfi Fidelity brokerage account purchased 43,000 shares of Cooper Tire, worth about $1.1 million. Call options were also purchased.
The pattern was repeated multiple times, including on May 22 and June 4, just before the deal was finalised. By the time it was announced, Ahmed had $2.5 million riding on the transaction.
And, it paid off. After the deal was announced, the Cooper Tire stock jumped 41 per cent from its June 11 closing price of $24.56. Ahmed made more than $1.1 million in profits. Lincoln Charitable Foundation, a Kanodia-controlled charity, received $220,000.
Ahmed wasn't the only one Kanodia allegedly tipped off. The SEC order said he also provided information to another 'friend' who allegedly made $170,000 and paid $22,500 in kickbacks. Subsequently, he is said to have tipped off the regulator for reasons that remain unclear.
The SEC, which framed the charges, is seeking to get them to disgorge their alleged illegal gains from trades and to pay monetary penalties. The US Attorney's Office for the District of Massachusetts has announced criminal charges against Kanodia and Ahmed.
"Kanodia misappropriated the information about the Apollo-Cooper Tire acquisition from his wife, to whom he owed a duty of trust and confidence, by tipping the information to his close friends Ahmed and tippee 1. In exchange for these tips, Kanodia was paid kickbacks," said the SEC order dated April 2.
The Indian regulator might not seek to take separate action on the case.
"Sebi (Securities and Exchange Board of India) could always take suo moto action or the SEC could write to the regulator on the matter. But since the trading happened in securities that were outside India, one will have to see what form this action will take," said a lawyer on condition of anonymity, as he hadn't studied the order.
"Since these are foreign securities and the insider herself has not intended the information to be misused, there might not be implications from a Sebi perspective," said Sandeep Parekh, founder of Finsec Law Advisors and former executive director, Sebi.
An email sent to Sebi did not receive a reply. Cooper did not reply to an email sent on the matter.
"There were no charges against the company, and we have nothing to do with this case," said an Apollo Tyres spokesperson.
A Reuters report said Kanodia's lawyer had asserted his innocence, adding he would plead not guilty. It said Ahmed's lawyer could not be reached, while a spokesperson for his firm had said he was on a leave of absence. The report said the employer had stated the allegations ran counter to its culture and that it had no connection to the firm or any of its portfolio companies.
In an ironic ending, the Apollo-Cooper deal was eventually called off due to various issues, including labour problems and disruptions at Cooper's Chinese joint venture, Cooper Chengshan. What would have been India's largest ever transaction in the automotive sector and the deal behind the alleged insider trading never actually happened.
SEBI ACTION MAY BE UNLIKELY
Insider trading occurred in foreign securities
Amit Kanodia's wife, the Indian insider, has not been charged because she shared information with spouse
Didn't intend it to be misused
Foundation for Sebi action would be uncertain, say lawyers
Apollo says 'we have nothing to do with this case'