The Supreme Court on Tuesday recognised Sebi as an ?investigating agency? with jurisdiction over the Satyam Computer Services fraud, paving the way for the regulator?s officials to interrogate company founder B Ramalinga Raju and brother B Rama Raju, almost a month after investigations were initiated.
Sebi?s investigation into the case began the very day Ramalinga Raju confessed to window-dressing Satyam?s accounts: January 7. But its attempts to question the Raju brothers were stymied. Sebi had approached the Andhra Pradesh High Court last week to overturn a lower court decision preventing its from questioning the Rajus.
The Congress-led Andhra Pradesh government reacted with alacrity to the SC decision, clarifying that it had never opposed Sebi?s petition in the lower court. The state?s counter filing with the trial court was faxed to the media, with a cover note stating that ?no person accused of serious financial frauds, much less a person who has ?confessed? to his wrongdoings, can oppose interrogation.?
The AP government has been accused of protecting the Rajus by keeping out of the investigative loop central agencies like the Serious Fraud Investigation Office and Sebi.
That Sebi?s interrogation–now scheduled from Wednesday to Friday?would have yielded more actionable leads had it taken place the day after rather than a month after Raju?s admission is obvious.
However, more alarming, say experts, is Sebi?s refusal to exercise powers that don?t need a court?s nod. ?As soon as Sebi initiates a probe, it can pass an ex-parte order, prohibiting those under a needle of suspicion from trading in the shares of the firm. The Sebi Act also empowers it to freeze bank and demat accounts of those suspected of perpetrating fraud or market manipulation. Sebi uses Sections 11(4) and 11(B) routinely and their prohibitive nature places the onus on the accused,? a senior corporate lawyer pointed out.
To put that in context, of the 90 orders passed by Sebi in 2009 so far, as many as 37 are under Sections 11(4) and 11(B). Unlike the New York Stock Exchange, which suspended trading on the Satyam counter for three days, Sebi let the stock trade, but never barred the perpetrators of the fraud from trading.
?Keeping trading open was a good idea as it meant the market was orderly and had enough liquidity. That the stock price didn?t fall to zero also gave confidence to Satyam investors, clients and employees. But concomitantly, if insiders and key management personnel would have been barred from trading, it would have created more confidence,? said Jayanth R Varma, professor of finance at IIM, Ahmedabad. Typically, companies have a blackout window close to key events like results, during which top management isn?t allowed to buy or sell shares.
?Raju and his family?s demat and bank accounts could have been frozen, whether his shares were pledged or not,? said a legal eagle. ?Now, even if Sebi finds the Rajus guilty, it may find it difficult to recoup investors? losses as it hasn?t seized any assets to disgorge,? he added.