EAS Sarma, Former Revenue Secretary asks tough questions
January 8, 2009
14-40-4/1 Gokhale Road January 8, 2009
Tel. Nos. 0891-6619858/ 9866021646
Shri Anurag Goel
Ministry of Corporate Affairs
Govt. of India
Shri C.B. Bhave
Subject:- Satyam Computers- Delay in Inquiry by SEBI
Dear Shri Goel/ Bhave,
I had written to DCA & SEBI on the 17th & the 18th respectively of December, 2008 suggesting that both the agencies should start a coordinated enquiry immediately into the Satyam-Maytas affair and its adverse impact on the small investors in the country. In my subsequent letter dated 5th of January, 2009, I had suggested to DCA an arrangement by which the independence of the non-executive directors could be ensured.
None of these letters has elicited any response whatsoever. DCA has perhaps launched a fact-finding probe but its pace has been so slow that it could not stop the mayhem in the market on the 7th of this month. On the other hand, SEBI had chosen to remain a silent spectator till Satyam's promoter came forward and confessed to his fraudulent ways. As a result, the stock market plummeted to new lows yesterday. The shareholders of Satyam were the ones that lost everything. The rest of the shareholders, including thousands of small investors were also the losers, as a result of this unfortunate development.
Could DCA/ SEBI have intervened earlier and saved at least a part of the losses to the small investor? I believe that the answer to this is in the affirmative!
Satyam Computers did come under the scanner of the regulatory agencies more than once in the past. In August, 2002, for example, there were complaints about the accounting practices of the company in its accounts for Financial Year of 2001. On such complaints, DCA had initiated an enquiry. For some strange reason, neither DCA nor SEBI had followed it up. The company's name figured in the infamous Ketan Parekh case but the high profile of the company and the hobnobbing of its promoter with the bigwigs of the government at that time perhaps silenced the regulators altogether. The auditor of Satyam's accounts, Price Waterhouse, was involved in auditing the accounts of Global Trust Bank (GTB) which had also collapsed like Satyam a few years ago.. The regulators allowed the promoters of GTB to get off the hook and siphon off funds. They also permitted Price Waterhouse to continue to make merry on the Indian turf. I understand that Price Waterhouse has employed
the kith and kin of some important figures in the government today.
As recently as in February, 2008, the World Bank debarred Satyam from providing IT services on the basis of charges of bribery and dubious documentation.
What else is needed for regulators to sit up and exercise surveillance over the affairs of such a company and such an auditor?
Against this background, the regulators also need to answer questions not only on the misdeeds of Satyam but also on the continuing misdeeds of other similar companies.
I would, in particular, request both of you to enquire into the following aspects meticulously.
What are the reasons for the delay on the part of SEBI in initiating an enquiry into Satyam-Maytas affair? Who is responsible for the delay? Is not SEBI indirectly liable for the investors' losses?
Have there been violations of Clause 49 of the Listing Agreement with Satyam and Maytas during the last ten years and, if so, whether there has been any culpability on the part of the officers of SEBI in allowing and condoning such violations?
Has there been scope for and instances of insider trading in these companies?
In the case of independent directors of Satyam and Maytas, have there been instances of conflict of interest? For example, Ramamohan Rao and Ramalinga Raju are directors on both ISB and Satyam. ISB received donation from Satyam. There could be similar or different kinds of conflict of interest in the case of the other directors.
Is there culpability on the part of the individual directors for the fraud being perpetrated? What is the culpability of the directors on the Audit Committee?
Did the independent directors receive unusually remunerative perks from the two companies, which could have compromised their independence?
Is Satyam criminally liable for "bribing" the World Bank officials?
Now that Price Waterhouse has been found to be involved in auditing many similar dubious companies, DCA/ SEBI should identify all the companies audited by that firm and order a discreet enquiry. Also, both DCA/ SEBI should look into the affairs of all the companies involved in the Ketan Parekh affair.
If regulatory authorities cannot anticipate and act in such matters, their utility will come in doubt. I hope DCA/ SEBI will at least now wake up and act as above. I am marking a copy of this to Secretary (DEA) also.