Mumbai: The scam-hit Satyam Computer aside, the merchant bankers associated with it have also come under the scanner of the market regulator Sebi in its investigation into the IT firm and its share price dealings.
The enquiry is being conducted by Sebi general manager Sunil Kumar A, who has been designated as Investigating Authority in the case. He has been asked to submit the report at the earliest.
“Whether any merchant banker is guilty of having contravened the Sebi (Merchant Bankers) Rules and Regulation 1992,” the regulator said while constituting the investigating authority.
Sebi has also empowered the investigating authority to “seek the assistance of officers of the board (Sebi) and any other person and these persons shall be bound to render such assistance.”
In the interest of the investors, public and the securities market, “no notice to the persons to be investigated should be given and therefore it is ordered that” the investigation might be conducted without such notice, Sebi executive director PK Nagpal said in the order.
On 7 January, Satyam’s founder B Ramalinga Raju disclosed massive financial irregularities at the company and resigned as the chairman of the company. On the same day, DSP Merrill Lynch, which was roped in December 2008 to advise on strategic options available to Satyam, also announced having terminated its engagement with the IT firm.
Satyam has appointed DSP Merrill Lynch as a merchant banker to review and suggest a plan to increase shareholder value following abortion of Satyam-Maytas deal.
”We, DSP Merrill Lynch Limited, have terminated our advisory engagement with Satyam Computer Services Ltd for considering various strategic options on 6 January, 2009,“ DSP Merrill Lynch said adding, “In the course of such engagement, we came to understand that here were material accounting irregularities, which prompted our aforesaid decisions.”
In the past, Satyam had taken services of Enam Securities as advisor during the issuance of American Depository Receipt (ADR). The company got listed on New York Stock Exchange in 2001.
Incorporated as private limited company, Satyam got public in 1991 with issue oversubscribed by 17%.
As a first step in the investigation process, the regulator has started look into the affairs of the company in accordance with the provisions of the SEBI Act.
Although Raju has been sent to 14-days judicial custody, Sebi is yet to quiz him.
The probe follows a letter written to the Board by Raju in which he disclosed that accounts provided to the stock exchanges were not true and the financial irregularities is about Rs7,800 crore.
He admitted in the letter, “the gap in the balance sheet has arisen purely on account of inflated profits over several years (limited only to Satyam standalone, books of subsidiaries reflecting true performance).”
What started as a marginal gap between actual operating profit and the one reflected in the books of accounts continued to grow over the years and attained unmanageable proportions as the size of the company operations grew significantly, he wrote.
“Every attempt made to eliminate the gap failed. As the promoters held a small percentage of equity, the concern was that poor performance would result in the takeover, thereby exposing the gap. It was like riding a tiger, not knowing how to get off without being eaten,” he added.