Satyam scam: Banks, internal auditor under Sebi scan

Capital market regulator Securities and Exchange Board of India (Sebi), which was investigating insider trading charges against Satyam’s promoters and some institutional investors, has widened its inquiry to cover the role of banks and the internal auditor in Satyam, according to a Sebi official.

Satyam Computers founder B Ramalinga Raju had confessed in a letter to Sebi January 7 that over Rs 5,000 crore worth of cash and bank balances did not exist. Later investigations showed that bank fixed deposits were also reportedly forged. Sebi, therefore, has launched a coordinated investigation with the Registrar of Companies (RoC) to examine transactions between Satyam and its bankers BNP Paribas, Citibank, HSBC, HDFC and ICICI. Bank

If it is established that bank officials were conniving with Satyam’s management to issue false certificates, a case can be lodged against the bank employees.

Sebi’s investigation into the internal auditor’s role assumes significance because external auditor Price Waterhouse has said yesterday that its audit report on Satyam cannot be relied upon because it relied on information and explanations provided by the management.

Satyam Computer’s internal audit was done by its employees. Managements usually define the scope of the internal audit but in a large company like Satyam, this audit covered almost all its business operations including bank and cash balances.

Since PwC has disowned its own report, the internal auditor’s assumes significance. Under the Companies Auditor’s Report Order (CARO) of 2003, the external auditor is supposed to report whether the company has an internal audit system commensurate with its size and nature of business.

Sebi’s investigations have been delayed because Raju and his brother, who was Satyam’s managing director, are in jail. Tomorrow, however, Satyam’s management will hear a plea from Sebi to allow the police to interrogate the Rajus and study the papers and documents that have been seized by the police from the promoters and the company.

Sebi is also investigating insider trading charges. While ordering investigation in Satyam’s case Sebi has said that the scope of investigation will also cover insider trading. Sources said ‘it is obvious that first we will look at the insider trading within the company and than by outsiders.’ If the bulk sell of shares by institutional investors after reversal of Maytas acquisition was based on some inside information — like possibility of fraud by the promoters — by them than actions can be taken against the institutional sellers.