Hexaware hit by internal forex fraud

Indian IT services provider Hexaware Technologies' stock closed at a four-year low on the Bombay Stock Exchange (BSE) after the company announced that it was conducting an "internal investigation" into "certain actively-concealed and potentially-fraudulent foreign exchange transactions conducted by a Hexaware official."

The Hexaware stock fell 17 per cent to Rs 73.70 at the close of day. It was its biggest decline since 2001 when the stock was at Rs 71.35.

The rupee has been appreciating against the dollar, and this could escalate the problems for Hexaware which reported its lowest profit in nine quarters for the quarter ended September 30, said analysts.

The Hexaware official (unnamed), who exercised unauthorised fiduciary powers, has been suspended, pending investigation, the company said. Hexaware plans to provision between $20-25 million (around Rs 80-100 crore) to cover any potential exposure as a result of these transactions.

The forex transactions in question were initiated over the last few months. These transactions were unauthorised and outside the company's normal hedging programme.

The information regarding these transactions was withheld from the senior management and the board and was not included in internal reports, the company said in a statement.

The first transaction came to light on November 22, 2007. Preliminary investigations led to uncovering of more such transactions.

"The need for provisioning is because or direct actions of one individual which were actively concealed," said Rusi Brij, Vice Chairman and CEO.

"As immediate steps, an embargo has been placed on all option deals; future forex deals will necessarily have to be transacted jointly by two signatories out of the designated four from the top management; the company's authorised dealers are being told about this procedure and the internal auditors (KPMG) are being asked to conduct a thorough audit of the function.

The company will continue to maintain the normal hedging strategy to protect against the rupee appreciation," said Shailesh Haribhakti, chairman of the audit committee.

"The company's business remains robust and its future growth trajectory unaffected. Our order book, as of September 30, 2007, stands at over $300 million. We will continue to build on that," added Rusi Brij.

INSIDER'S JOB

The Hexaware official, who exercised unauthorised fiduciary powers, has been shown the door

Details of these fraudulent transactions were withheld from the senior management and the board

The first transaction came to light on November 22