Sebi to recover Rs 3,000 cr from five Satyam execs

Raju, aides barred from markets for 14 years

The Securities and Exchange Board of India (Sebi) on Tuesday slapped a penalty of around Rs 3,000 crore on five former Satyam Computer executives, including founder B Ramalinga Raju, for violation of various securities market regulations like the one on insider trading. The market regulator also barred these individuals from accessing the securities market for 14 years.

According to the Sebi order, Raju, his brother Rama Raju and two other senior executives of the company made unlawful gains to the tune of Rs 1,850 crore by selling or pledging Satyam shares while in possession of insider information, including that on financial irregularities brewing at the firm.

Sebi has asked Raju and others to disgorge within 45 days the wrongful gains of Rs 1,850 crore, with a simple interest of 12 per cent a year since January 2009. The total penalty with interest works out to around Rs 3,000 crore.

The ban and the penalty will be applicable to Former Satyam chairman B Ramalinga Raju, former managing director Rama Raju, former chief financial officer Vadlamani Srinivas, former vice-president (finance) G Ramakrishna and former head of internal audit Prabhakara Gupta.

"In this case, the individuals committed a sophisticated white-collar financial fraud with pre-meditated and well-thought plan and deliberate design for personal gains and to the detriment of the firm and investors in its securities," said Sebi whole-time member Rajeev Kumar Agarwal in a 65-page order.

The regulator has charged these individuals with alleged violation of various provisions of the Sebi Act, Prohibition of Fraudulent and Unfair Trade Practices (PFUTP) Regulations and Prevention of Insider Trading Regulations (PIT).

The Satyam scam came to light in January 2009, with an email to the regulator confessing to financial irregularities in the technology company. Cash and other bank balances of Rs 5,040 crore on the balance sheet were non-existent. Debt and interest positions were also falsified.

"It is an undisputed fact that the price of the company's scrip slid to a low of Rs 41.05 on January 7, 2009, from Rs 178.95 at the previous day's close on NSE, after the news on financial irregularities became public. This also shows the information about the adverse financial position of Satyam Computer and the fudged financial numbers was price sensitive. While in possession of the 'unpublished price-sensitive information', some of the individuals sold, transferred and pledged the shares of Satyam at high prices and benefitted substantially at the cost of other unsuspecting investors in the market," the Sebi order said.

THE SATYAM SAGA

• Jan ’09 B Ramalinga Raju, then chairman of Satyam, sends an email to Sebi confessing financial irregularities
• Jan-Feb ’09 Sebi conducts investigations into Satyam’s affairs; inspects its account books
• Mar ’09 Sebi issues showcause notices to Raju, four others; follows these up with supplementary notices in June 2009 and March 2010
• Apr ’10 Raju’s advocates say he is in judicial custody and physically not in a position to meet his legal advisors or provide instructions to any person
• May ’10 to May ’14 Sebi provides 10 notices of personal hearings; the individuals concerned seek adjournment on each occasion
• May ’14 Sebi grants last opportunity of personal hearing; individuals again choose not to avail of it
• Jul ’14 Sebi passes order barring Raju and four others from securities market for 14 years; asks them to disgorge Rs 1,850 cr of unlawful gains, with simple interest at 12% a year since 2009

Raju had confessed in his email that the gap in the balance sheet arose out of inflated profits over several years and that attempts to bridge the difference had failed. The last of these attempts was acquisition of Maytas Infra and Maytas Properties, entities that had connections with the promoters.

The acquisitions were "the last attempt to fill the fictitious assets with real ones", according to Raju's confession.

"In providing the said false certification, Raju deceived and duped not only the stock exchanges, but millions of investors," the order said.

Following Raju's January 2009 email confessing financial irregularities, Sebi had carried out an investigation into the affairs of Satyam and inspected its books of accounts. The regulator subsequently issued showcause notices to the five Satyam executives in March 2009 and issued supplementary notices in June 2009 and March 2010. Sebi also requested Raju and others to appear before it for personal hearings. The individuals failed to appear for the hearings and asked Sebi to keep the case in abeyance till conclusion of the Central Bureau of Investigation (CBI) trial.

Sebi gave another opportunity of personal hearing on May 12, 2014, saying the "pendency of CBI trial cannot be accepted to be a justifiable reason for their non-attendance on all the dates fixed for personal hearings".

The individuals, however, again chose not to avail of the opportunity. The regulator then decided to proceed with the final order in the case.

Besides CBI and Sebi, investigations into the Satyam scam were carried out by the Crime Investigation Department (CID) and the Enforecement Directorate (ED) as well.

A special court is set to announce the date of judgment in the Satyam case on July 28. The court looked into statements by 216 witnesses and examined 3,038 documents produced by CBI, whose charges ranged from criminal conspiracy to breach of trust, forgery and cheating.

Raju spent 32 months in judicial custody. The government had stepped in to facilitate the sale of Satyam to Tech Mahindra. The merger was completed in June 2013. After the merger, Satyam is now known as Tech Mahindra.