10 March 2009

Satyam auction - illegal disclosures?

Today's Mint has a piece by Manas Chakravarty and Mobis Philipose - "Minority shareholders at Satyam being short-changed":

"Why the company’s shares continue to be unstable even two months after B. Ramalinga Raju confessed to the swindle is that shareholders are still in the dark about its financial health. While it’s true that a restatement of accounts could take time, there are some basic details it could certainly share.
It’s not that the newly appointed board of the company has no information to share either. In the bidding process it has announced, the company will share financial, business and legal materials with shortlisted bidders, subject to non-disclosure agreements.
Simply put, all information that is to be made available to the bidders should be made available to Satyam’s minority shareholders as well."

While the piece is dead on, there is a far more serious problem with the selective disclosure of company information to the shortlisted bidder by the Board of Satyam (and approved by SEBI). It is that such disclosure would be illegal under Indian and US laws. The insider trading regulations of SEBI clearly prohibit selective disclosure of price sensitive information to select persons to the exclusion of others. The impact of violating the law is quite serious and in fact SEBI has pursued persons for such selective disclosures in the past. Similarly, Regulation FD of US Sarbanes Oxley Act also clearly outlaws such selective disclosures. Are we now going to have the target of the revamped Board of Directors commit an illegal act, aided by the regulator itself?

No comments: