Only SEBI can get to the core of Satyam fraud

3 Feb 2009, ET Bureau

There is now a widespread perception that the investigation of the mega fraud at Satyam Computers could have political ramifications feeling that politicians in high places could be mixed up, even if indirectly, in some of the commercial activities of Ramlingaraju’s family.

Real estate is not only the last bastion of control for the politician in this country, it also acts as a sustainable source of funding for political activity. And it is quite apparent now that Raju and his family were moving into real estate/infrastructure projects in a big way.

Consequently, there is also an impression that the investigation by Andhra CID into such a sophisticated white-collar crime may be totally inadequate. One recalls how a big team of special investigators of economic offences were deployed to unravel the Harshad Mehta scam in the early nineties.

Hundreds of documents relating to sophisticated broker-banker transaction used to come loaded in a jeep. Specialists in economic offences at the CBI used to find it difficult to decipher evidence buried in those tomes. They sought help of private bankers and other market experts.


In sharp contrast, the Satyam case, probably even more sophisticated than the Harshad Mehta scam, is being handled solely by the Andhra CID police, who are so far refusing to take help from investigators from stock market regulator Sebi. In fact Sebi has been denied access to the main accused, who are in judicial custody. Andhra CID, on its own, just cannot unravel the full dimensions of such a fraud. For instance, a core element of the Satyam fraud is how the promoters and their associates, while consistently keeping an inflated turnover and profit, were gradually reducing their stake in the company by selling in the open market.

Now this clearly calls for an insider trading investigation. It is a criminal offence which only Sebi has competence to investigate. The Andhra CID needs Sebi help to trace the cash trail which might take them to myriad private companies run by the promoters in India and abroad. Now more details have come to light on money taken out by the promoters from India coming back through the Mauritius route. All this is clearly beyond the Andhra CID police’s competence to unravel. They need help from Sebi and the Serious Fraud Investigation Office. Curiously, they do not seem to want it!

In the criminal procedure code, a judicial custody is sought to prevent the accused from unduly interfering with the overall investigation of the case. Ironically, in this case, the judicial custody is preventing competent agencies from looking into the sophisticated fraud. The nations is carefully watching the Satyam fraud whose ramifications go well beyond one company, as the Prime Minister had stated recently at the ET awards function.

The investigators typically get about 90 days to prepare the charge sheet. They can keep the accused in judicial custody no more than that period. It will be a shame if the Andhra CID is unable to build a foolproof case during this period.

Legally, the case will proceed strictly as per the charge sheet and the way the charges are framed. Often, if charges are not framed in a foolproof manner covering all angles, the accused can get off the hook or dilute the severity of the crime on technical grounds. It is for this reason alone that the Andhra CID must seek the active co-operation of other competent agencies such as Sebi. It would be both unfortunate and highly irregular if the state police does not seek such co-operation.

Sebi on its part had tried to seek the permission of a lower court to interrogate Raju. The permission was denied on technical grounds. Now the Sebi has rightly moved the Supreme Court in order to have access to the main accused. This is absolutely critical to the case. Sebi has a big role in establishing before law the criminal intent of the accused to defraud thousands of small shareholders.

The accused, having admitted to misdeeds, are expected to argue there was no criminal intent to defraud. The attempt will be to dilute the severity of the charges. Criminal intent to defraud is at the core of the Satyam case.

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The Big Question Who is Preventing Sebi and the Small Answer everybody knows