Here’s a story we all understand.
A thief snatches your mobile phone and runs away. Luckily, an alert PCR team catches him within minutes and recovers your phone.
Now imagine the police take that mobile and say, “We’ll keep it safely in our locker.”
Would that sound like justice?
Of course not. The mobile belongs to you. Justice means returning what was stolen to its rightful owner.
Now let’s shift from the street to the stock market.
In the world of finance, an insider trader is no different from that thief.
He uses secret information — known only to a few — to earn profits or avoid losses, at the expense of ordinary investors who trade in good faith.
Recently, SEBI caught such “thieves” in the Indian Energy Exchange (IEX) case and impounded ₹173 crore of illegal gains.
But here’s the crucial question:
If the regulator has already caught the culprits and seized the profits, shouldn’t that money go back to the investors who were cheated?
If your answer is yes, this discussion is for you.
What Happened in the IEX Case
On October 15, 2025, the Securities and Exchange Board of India (SEBI) passed an interim order in a high-profile insider trading case involving IEX shares and derivatives.
The timeline goes like this:
- On July 23, 2025, the Central Electricity Regulatory Commission (CERC) made a major announcement about “market coupling,” a policy expected to affect IEX’s dominant position.
- The very next day, IEX’s share price crashed nearly 30%.
- SEBI found that certain traders sold shares and bought put options just before this announcement — when the information was still secret.
That’s insider trading — trading while in possession of Unpublished Price-Sensitive Information (UPSI).
Citing violations of Regulation 3 and 4(1) of the SEBI (Prohibition of Insider Trading) Regulations, 2015, SEBI impounded around ₹173 crore under its powers from Sections 11 and 11B of the SEBI Act, 1992.
In simple terms, SEBI froze the profits earned through illegal means.
But that’s where the story seems to stop — and where this article says it shouldn’t.
What Happens After SEBI Catches the Thief?
Think again of that mobile-snatching story.
The thief was caught. The phone recovered.
Now, would justice be complete if the police only announced, “We’ve seized the phone and it’s safe in our locker”?
Of course not. The real closure comes when the phone is handed back to its owner.
That’s exactly what should happen when SEBI impounds insider trading profits.
The money doesn’t belong to SEBI or the government.
It belongs to those investors who unknowingly traded against insiders and suffered a loss because of unfair information gaps.
The Law Already Allows It
The best part?
SEBI doesn’t need a new law to do this. The framework already exists.
🔹 Section 11(5) of the SEBI Act, 1992
This section says that any money SEBI recovers through disgorgement (that is, taking away illegal gains) must be credited to the Investor Protection and Education Fund (IPEF).
🔹 SEBI (Investor Protection and Education Fund) Regulations, 2009
Under these regulations, the fund can be used not only for investor education but also for restitution to eligible and identifiable investors — basically, returning money to victims when possible.
SEBI has already done this in IPO scam cases and front-running matters, where affected investors were identified and compensated.
So the legal door is open — all we need is a stronger will to walk through it.
Who Are the Real Victims in This Case?
In the IEX case, the victims are ordinary investors who:
- Bought IEX shares (without knowing a bad policy news was coming), or
- Sold IEX put options (not realizing insiders were about to trigger a fall).
When insiders dumped shares or bought options secretly, these investors became unwitting counterparties.
Every rupee of illegal gain on one side equals a rupee of unfair loss on the other.
So when SEBI impounds ₹173 crore, it’s essentially recovering stolen property.
Justice demands that this property be returned to those who were robbed — as far as technology and data allow.
Global Examples SEBI Can Follow
United States – The SEC’s Fair Funds
The U.S. Securities and Exchange Commission has a system called “Fair Funds”.
Under the Sarbanes-Oxley Act (Section 308), the SEC can combine disgorged profits and penalties to compensate harmed investors.
They even run mathematical “event studies” to calculate who lost what and distribute the recovered funds accordingly.
The U.S. Supreme Court, in Liu v. SEC (2020), confirmed that disgorgement is valid only if it benefits victims and is limited to the wrongdoer’s net profit.
United Kingdom – FCA Restitution
In the UK, the Financial Conduct Authority (FCA) can order restitution under Section 384 of the Financial Services and Markets Act (FSMA).
If a company or trader profits from insider information or market abuse, the FCA can make them repay the investors directly — as seen in the Tesco case, where investors were compensated for losses linked to hidden information.
In both markets, regulators don’t just punish — they repair.
How SEBI Can Implement This in India
Here’s a simple, workable roadmap SEBI could adopt in the IEX case:
- Identify Who Was Harmed
Look at trade data and identify those who bought or sold in the IEX scrip during the insider trading window. - Calculate Their Losses Fairly
Use a scientific method (like an event study) to estimate the price difference caused by the withheld information. - Appoint a Claims Administrator
Through NSDL, CDSL, or stock exchanges, verify investor identities and automate the payout process. - Use the IPEF Channel
Route the impounded ₹173 crore and any interest through SEBI’s Investor Protection and Education Fund. - Maintain Transparency
Publish how much was returned, how many investors benefited, and what methodology was used.
If some money remains unclaimed, it can go back to the IPEF for investor education — so nothing is wasted.
Common Questions and Misconceptions
“But the price crash was because of the CERC decision, not insider trading.”
True. But insiders used that knowledge early to profit unfairly. Restitution doesn’t punish for the market event; it reverses the unfair advantage.
“It’s too complicated to identify affected investors.”
It used to be. But with today’s digital trading records, SEBI can trace every trade and wallet. The U.S. SEC and U.K. FCA do this regularly.
“Does SEBI even have the authority to pay investors?”
Yes. Both Section 11(5) of the SEBI Act and IPEF Regulations clearly authorize restitution.
All that’s needed is execution.
A Simple Plea: Return What Was Stolen
Let’s return to that mobile story one last time.
A phone recovered but never returned is incomplete justice.
So is a ₹173 crore recovery that never reaches the pockets of the people who lost it.
When SEBI impounds profits made through insider trading, it’s not just catching lawbreakers — it’s recovering stolen value from the market.
That value rightfully belongs to the innocent traders who played fair.
Why This Matters
If SEBI channels the impounded ₹173 crore from the IEX case back to the harmed investors, it will set a powerful precedent — one that says:
“In India’s markets, if you steal through insider trading, not only will you be caught, but the money will be returned to the people you cheated.”
That’s what a mature, investor-first market looks like.
And that’s how SEBI can turn a strong order into a truly fair outcome.
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