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Sebi promises strict action against Raju

Published on Wed, Jan 07, 2009 at 12:21 | Source : CNBC-TV18

Updated at Thu, Jan 08, 2009 at 17:49

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CB Bhave, Chairman of the Securities and Exchange Board of India (Sebi), said that outgoing Satyam Chairman B Ramalinga Raju's letter raises question on the veracity of its accounts.

In the wake of Raju admitting to fraud, Bhave said the action is of horrifying magnitute and everybody needs to learn a lesson from this event. He said that the Sebi needs to find out who were a part of such activities of the company and that the market regulator is in touch with the stock exchanges to take necessary actions.

Bhave added that the regulator is also in touch with the Ministry of Corporate Affairs and that there will appropriate coordinated action soon.

Bhave said, "Whenever any fraud occurred in any market, in any area, this issue comes up--Is this pervasive and are there mechanisms in the market to deal with such a fraud. So, I think our first reaction should be that we make sure that we demonstrate that we will deal with such a fraud. Then the next step would be to get into how this fraud occurred." He said it is likely that it would be occurring in other places and what do we need to detect it. He added the matter is of tremendous proportions, it is urgent and it is something that requires our attention not only on an immediate basis but on a continuing basis for some time. "So we are conscious of that."

Also, Bhave added that Sebi is in touch with the stock exchanges to see what will be the appropriate action; however, our main effort is to see that whatever facts are available with any regulatory agency are putout and investors know the truth.

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M Damodaran, Former Chairman, Sebi, said the market regulator needs to look at the Satyam issue uni-dimensionally and ICAI needs to fly their experts to interrogate auditors immediately. He added that there is a need to find if there was a systemic issue with Satyam while auditing. He feels that the larger question is how to protect investor interest and conserve confidence now. He said, "I think someone ought to go and get an appropriate order, and see that there is an interim management that is in possession of all the assets till anything further is done, so that there is no alienation, no stripping of assets at this point, because the letter states clearly that the present incumbent wants to stay on till the Board is expanded, and that a nominee of his would be the interim CEO."

Damodaran feels the speed of looking into the matter is of essence now to restore investor confidence and that interrogation with auditors needs to be done immediately. "Somebody needs to move quickly, proactively and find out is there a systemic issue relating to audit, and if there isn't a systemic issue then clearly disciplinary action will kick-in."

With respect to the kind of action the company and the management is open to from the SEC, Damodaran said, "Clearly the kind of disclosures one is required to make on exchanges, whether in India or overseas, are almost identical." He added, "So, clearly what they are going to ask is the kind of questions that will be asked by Sebi and will be asked by the Exchanges here in India. They have additionally the PCAOB (Public Company Accounting Oversight Board), which is the body that looks at the accounting, auditing profession. So, there would be some queries from there, I imagine, from there that will get triggered from there of the nature of the audit that has taken place of that kind."