The capital market regulator Securities and Exchange Board of India (Sebi) today formally ordered investigation in the Satyam case and its team is visiting company’s office in Hyderabad tomorrow to inspect the books and records. The regulator has spoken to officials of the corporate affairs ministry to coordinate investigation. Sebi will be examining violations under several provisions.
The board will be probing issues such as fraudulent practices, insider trading, norms circumvented by merchant bankers, takeover norms violations under various provisions of the Sebi Act and the Securities and Contract Regulation Act.
The regulator has appointed Sunil Kumar A, general manager, Sebi, as the investigating authority to look into the affairs relating to buying, selling or dealing in Satyam shares and submit a report to the board at the earliest. The Satyam saga has been in the news since last few weeks and Sebi Chairman C B Bhave has said recently that Sebi was looking into the matter. But after today’s confession by Satyam chairman 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.
The authority is also empowered to exercise powers under the Section 11 (3) and 11C 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 of the matter, the Sebi has said the investigation will be done without giving notices to the persons to be investigated.
The investigation report will come in due course but experts believe that despite self admission of fraud by Raju, he faces huge penalty and even a jail term. Experts see possibility of a slew of lawsuits against the company as many private parties may go to courts for recovering 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 a maximum penalty of Rs 25 crore and a 10-year jail term for wrong doers," said Sandeep Parekh, former executive director (legal) of Sebi. He said, despite admission of fraud, authorities have to prove it.
Besides the Indian regulators such as Sebi, corporate affairs ministry, 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 the SEC Act provides for such actions as the Satyam ADR issue is listed on the New York Stock Exchange. Some experts believe that “since the fraud was taking place over the years, the role of auditors that have certified the annual accounts is under question. This is a serious offence in the US also.”
Parekh also said that regulator can investigate the role of audit committee of the company consisting of independent directors as the audit committee is formed under the listing agreement. Independent directors are supposed to look into all accounts and raise financial red flag if any.
