Sebi orders probe into Satyam case

The capital market regulator Securities and Exchange Board of India (Sebi) has today formally ordered investigation in the case of Satyam Computers and its team is visiting company’s office in Bangalore tomorrow to inspect the books and records. Sebi has spoken to officials of department of companies affairs also to coordinate the investigation.

Sebi is examining violations under several provisions. The board is investigating fraudulent practices and whether there was insider trading took place or not, any norms circumvented by merchant bankers, take over norms violations under various provisions of Sebi act and the Securities and Contract regulation act.

Regulator has appointed Sunil Kumar A, general manager, Sebi as the Investigating Authority to investigate into the affairs relating to buying, selling or dealing in the shares of Satyam Computer Services and submit a report to the board at the earliest.

Satyam saga has been in the news since last few weeks and Sebi Chairman C B Bhave has said recently that Sebi is looking in to the matter but after today’s confession of fraud by the chairman of Satyam Computers as part of his resignation, the regulator has officially ordered investigations.

The Investigating Authority is also empowered to exercise the powers under Section 11 (3) and 11-C of the Sebi Act, 1992 for the purpose of investigation. Under these sections, regulator enjoys wide ranging powers including seizure of books.

Looking at the urgency in investigating the matter, Sebi has said that the investigation will be done without giving notices to the persons to be investigated.

Sebi’s investigation report will come in due course but experts believe that despite self admission of fraud by Satyam’s outgoing Chairman B Ramlinga Raju, he faces huge penalty and even jail term if authorities use the powers conferred to them. Experts are showing possibilities of slew of law suits against the company also as many private parties may file suits for recovery of their money.

"Sebi can take actions against the company for violation of listing agreements, that companies sign with the exchanges where they are listed, for misrepresentation and false accounting statements. Section 23 of the Securities Contract Regulation (SCR) Act provide for maximum Rs 25 crore penalty and 10 year jail term for wrong doers," said Sandeep Parekh, former executive director (legal), Sebi. He said, despite admission of fraud, authorities have to prove it.

It is not only Indian regulators like the Sebi of department of company affaires are investigating the Satyam's case, the US regulator Securities and Exchange Commission (SEC) is also expected to take actions against the company and the chairman, believe experts. Section 10-B -5 of SEC act provides for such actions. Satyam ADR (American Depository Receipt) issue is listed on NYSE, the US-based stock exchange. Some experts believe that “since the fraud was happening over the years, role of auditors that have certified the annual accounts is under question. This is serious offence in the US also”.

Parekh also said that regulator can investigate role of audit committee of the company consisting of independent directors as the audit committee is formed under listing agreement. Independent directors are supposed to look in to all accounts and raise financial red flag if any.