Satyam Executives Sold $1.8 Million of Stock Before Record Fall

Jan. 14 (Bloomberg) -- Satyam Computer Services Ltd. executives reaped $1.8 million from share sales in the six months before a botched takeover and fraud inquiry at India’s fourth- largest software exporter triggered a record fall in its stock.

Nine officials led by Chief Financial Officer V. Srinivas sold a combined 267,358 shares since July 14, according to filings by the company to the Bombay Stock Exchange. That’s more stock than the combined insider sales at 30 companies on India’s benchmark index, according to data compiled by Bloomberg.

Chairman Ramalinga Raju said on Jan. 7 that he’d fabricated $1 billion of cash and assets, sparking an 83 percent plunge in Satyam’s stock that wiped out $2.2 billion of investor wealth. The insider sales coincided with a record fall in Indian equities as the global credit crunch forced Satyam’s clients including Citigroup Inc. to cut spending on computer services.

“The impunity with which promoters sold shares is really shocking,” said R.K. Gupta, who manages the equivalent of about $100 million of stocks at Taurus Mutual Fund in New Delhi. “It also raises questions about how effective our regulatory system is that it could not detect the wrongdoing from the share sales.” Taurus Starshare fund held 56,223 shares of Satyam at the end of December, according to Bloomberg data.

Srinivas was arrested on Jan. 11, a day after chairman Raju was taken into custody and the government sacked the Hyderabad- based company’s board. Five other executives who sold shares were named in the Jan. 7 letter by chairman Raju as being “unaware” of the alleged fraud. S. Bharat Kumar, Srinivas’s lawyer, said he couldn’t contact his client as he is in judicial custody.

Start Enquiry

The government yesterday directed the Serious Fraud Investigation Office to start an enquiry into Raju’s claims, joining the state police, capital markets regulator, and accounting body in investigating the false accounts.

The Institute of Chartered Accountants of India yesterday set up a six-member panel to examine Satyam and its auditor PricewaterhouseCoopers LLP’s local unit. PricewaterhouseCoopers has said it complied with India’s accounting rules.

Satyam’s government-appointed board will name an auditor today to examine the books as its working capital requires “immediate attention,” new director Deepak Parekh said Jan. 12. Satyam would have to restate earnings for several years, he said.

Satyam, founded in 1987, made its name by helping companies tackle the year 2000 computer bug. After the bursting of the dot- com bubble, Raju, who says he’s inspired by physicist Albert Einstein, expanded into software including design engineering programs for General Motors Corp. and medical administration in a venture with General Electric Co.

Accelerated Sales

The 267,358 shares were sold in 32 transactions on Indian exchanges, with a combined value of about 86.3 million rupees ($1.8 million), according to Bloomberg calculations. Srinivas sold 92,358 shares in two transactions in September, according to the company’s filings.

“There are people who have lost an equally significant amount of money” because they didn’t sell their entire stake, T. Hari, head of communications at Satyam, said in a telephone interview yesterday. “It’s possible that not everyone exercised all those vested stocks.”

The executives accelerated sales of stock in the two weeks before Satyam’s aborted Dec. 16 bid to buy two developers controlled by Raju’s family, offloading 82,500 shares, according to Bloomberg data.

The $1.6 billion takeover plan, withdrawn within 12 hours due to protests from investors, was a final bid to cover up fictitious assets in Satyam’s books, Raju said Jan. 7.

The Satyam transactions exceed sales by directors and executives at Reliance Industries Ltd., India’s biggest company, Tata Consultancy Services Ltd., the nation’s largest software exporter, and 27 other companies on the Sensitive Index. The Sensex had its biggest drop in three decades in 2008.

Insiders typically buy more shares in their companies to support the stock during market declines. Reliance Chairman Mukesh Ambani bought 120 million shares in October, investing $3.6 billion in India’s largest warrant conversion.