Indians now among biggest tipsters to US SEC

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Mumbai | Updated: December 02, 2014 5:15 AM

If statistics emerging from the US are any indication, Indians have a penchant for whistleblowing.

If statistics emerging from the US are any indication, Indians have a penchant for whistleblowing.If statistics emerging from the US are any indication, Indians have a penchant for whistleblowing.

If statistics emerging from the US are any indication, Indians have a penchant for whistleblowing. The US Securities and Exchange Commission (SEC) has said the tips given to it by Indians form the second-largest international source of information. That’s a surprisingly large number considering that only 10 Indian companies were listed on US bourses, according to SEC data as on December 31, 2013, though not all the tips may relate to Indian companies.

In fiscal 2014, the SEC received 448 tips from outside the US, of which 70 came from the UK. India was just a step behind providing 69 tips while at 58, Canada came in a distant third.

Back home, whistleblowing hasn’t quite caught on. While the Companies Act, 2013, has amended the clauses governing corporate governance and clause 49 of the equity listing agreement makes it mandatory for companies’ audit committees to consider whistleblower complaints, there haven’t been too many instances of employees spilling the beans. It’s possible, exployees aren’t comfortable talking to their audit committees.


The Securities and Exchange Board of India (Sebi) has asked all companies to put in place a whistleblower policy. “We don’t want to be too intrusive but every company must have a policy within the ambit of the law,” a senior Sebi official told FE.

Sebi has a system called SCORES, where investors can log complaints anonymously. The system receives complaints from both investors and whistleblowers alike so there’s no information on whether Sebi has received complaints from company insiders and acted on them.

Data from the SCORES system — which lists companies whose complaints exceed 10 — shows that there are 20 Indian companies that fall in the category as on October 31. Oil & Natural Gas Corporation tops the list with 103 complaints.

“How effective the system is is not known,” Shriram Subramanian, managing director of Bangalore-based proxy advisory firm InGovern, said.

The advisory on the home page of SCORES reads: “There will be occasions when you have a complaint against a listed company/ intermediary registered with Sebi. In the event of such complaint, you should first approach the concerned company/ intermediary against whom you have a complaint. However, you may not be satisfied with their response. Therefore, you should know whom you should turn to, to get your complaint redressed.”

The SEC has the Dodd-Frank Whistleblower programme which offers monetary incentives to a person who voluntarily provides original information about a possible violation of the federal securities laws that has occurred, is ongoing, or about to occur.

The Dodd-Frank programme, initiated in August 2011, awards 10% to 30% of the penalty collected as a result of successful SEC action to the concerned whistleblowers. In September 2014, the regulator authorised an award of more than $30 million to an individual. The fund which doles out these awards had a balance of $437.79 million at the end of fiscal 2014.

“Sebi doesn’t have the sufficient manpower. People need training in forensic accounting and a direct comparison to SEC is not justified,” InGovern’s Subramanian said.

A landmark case of a whistleblower approaching a regulatory authority after the company ignored his complaints was Dinesh Thakur who spilled the beans on Ranbaxy Laboratories. Thakur, who had served on the board of the drug firm between 2003 and 2005, approached the US

Food and Drug Administration and Department of Justice with proof that the company had indulged in data tampering, supply of falsified data to the regulator and production and sale of substandard drugs.

The resulting investigation yielded a $500 million fine on Ranbaxy and a ban on import of drugs manufactured in four of its Indian manufacturing facilities, yet to be lifted. Infosys is another company which had to pay $34 million to settle a civil lawsuit where an ex-US-based employee’s complaint about the company’s fraudulent visa practices prompted a federal investigation.

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