SEBI Punished Ex Compliance Officer of erstwhile Satyam Computers for avoiding duty under Insider Trading Regulations
The SEBI has imposed Rs 5 lakh fine on the erstwhile Satyam Computer's compliance officerMr. G Jayaraman for failing in his duty to avoid insider trading in the company's shares in December 2008 - days before a major corporate scam broke out at the IT firm.
Jayaraman's role came to the light during market regulator SEBI's investigations into the Satyam scam, which came to light during the financial year 2008-09, SEBI said in an order dated July 27, which was made public recently.
The investigation revealed that Satyam's then Chairman Ramalinga Raju had proposed on December 06, 2008 the acquisition of Maytas Infra and Maytas Properties (two companies promoted by Raju's family) by the IT firm.
The announcement for these acquisitions were made public on December 16, 2008, and the plans were subsequently dropped next day on December 17, 2008, followed by a confession by Raju on January 7, 2009 about large-scale irregularities at the company.
SEBI said its probe found that the trading window for Satyam shares was closed for insider trading from December 17, 2008 till beyond January 9, 2009, although Jayaraman, as compliance officer of the company, was required to close the trading window much earlier on December 6.
Satyam's announcement on December 16, 2008 (evening) to acquire Maytas Infra and Maytas Properties resulted in a substantial fall in Satyam share price on December 17, 2008 when the scrip fell by over 33 per cent, and recovered marginally after cancellation of the decision.
SEBI investigation alleged that Jayaraman "violated the provisions of the 'Model Code of Conduct for Prevention of Insider Trading for Listed Companies' ... by not closing the trading window when unpublished price sensitive information about the acquisition...came into existence."
After a thorough probe, SEBI had imposed a penalty of Rs 5 lakh on Jayaraman on November 29, 2011, but this order was challenged at Securities Appellate Tribunal (SAT), which remanded the matter for a fresh probe by the regulator.
SEBI again issued fresh show-cause notices and gave Jayraman to present his case again in the matter.
Jayaraman contended that "time for commencement of closing the trading window and company's decisions are taken by the Board of Directors" and there was no such direction from the board to him to close the trading window on December 6, 2008.
He said he was not aware of the matters sought to be discussed or transacted at the board meeting by the then chairman until December 15, 2008.
"A compliance officer is obliged to discharge the responsibilities under overall supervision of board of directors. Taking a decision unilaterally on such important matter could amount to undermining the authority of board," SEBI quoted Jayaraman having contended before it.
Jayaraman also said closure of trading window without direction or in-principle approval would have led to speculative trading by innocent investors, and he "was not involved in the deliberations and decisions by Ramalinga Raju, the then chairman and, therefore, he could not have speculated on when to close the trading window."
The Satyam official further said he was not aware of material details of the said proposal on December 6, 2008 and it was speculative till December 15, 2008.
SEBI probe, however, found that Raju had also called Jayaraman, along with few other senior executives, to his house on December 6, 2008, where he talked about the proposed deal and said he would apprise the board about the same.
"An analysis of the events on December 06, 2008 mentioned above reveals that the said acquisition proposal was not one which could be viewed as premature or improbable.
"It was well known that all the three companies involved in the said acquisition proposal...were controlled by the same family, that is family of B Ramalinga Raju. The proposal regarding the acquisition was made by none other than B Ramalinga Raju himself who was the chairman of SCSL (Satyam Computer Services Ltd) at that time," SEBI said.
In addition, Raju's instruction to "all those who met him at his residence to keep the matter confidential till the board meeting on December 16, 2008 leave no doubt whatsoever that it was a significant proposal and...had vast financial and other implications," SEBI said.
"The publication of such proposal would definitely have materially impacted the price of the scrip," it added.
SEBI further said the Compliance officer is responsible to take all steps to ensure that any insider trading based on Unpublished Price Sensitive Information be prohibited.
Even though the compliance officer is to execute his responsibilities under the overall supervision of the Board, yet the key responsibilities conferred on the compliance officer cannot be overlooked.
For orderly and fair functioning of the securities market, it is essential for every market player to fulfill the requirements mandated in law. The duty weighs even more on a person like compliance officer, who is conferred upon with key responsibilities in a company.
