US court dismisses claims against former Satyam directors
New York: A US court here has dismissed claims made in a class action lawsuit against seven former directors of Indian IT firm Satyam Computers saying the directors were themselves "victims of the fraud" and the shareholder suit fails to adequately prove allegations of fraud and negligence against them.
US District Judge Barbara Jones of the Southern District of New York said in a 71-page ruling yesterday that the motion filed by the directors seeking dismissal of claims against them is "granted".
Jones ruled that in order to establish motive and opportunity, the plaintiffs must allege that the Satyam directors named in the lawsuit "benefitted in some concrete and personal way from the purported fraud".
However, the class action complaint "contains no facts" suggesting that the directors benefitted personally from the Satyam fraud.
"Lead plaintiffs have failed to establish motive...The majority of the allegations in the (class action complaint) concern an intricate and well-concealed fraud perpetrated by a very small group of insiders and only reinforce the inference that the defendants were themselves victims of the fraud."
"Having considered the (class action complaint) in its entirety, the court finds that lead plaintiffs have failed to plead sufficient facts to raise a strong inference of recklessness on the part of the defendants that is at least as compelling as the non-fraudulent inference reasonably drawn from the allegations.
"Accordingly, the...Claim against the defendants is dismissed," the court ruled.
The suit was brought by firms in the US who had brought Satyam stock on the National Stock Exchange and the Bombay Stock Exchange between January 2004 and January 2009.
These firms include Public Employees' Retirement System of Mississippi, Mineworkers' Pension Scheme, SKAGEN AS and Sampension KP Livsforsikring A/S.
The seven former directors named in the class action suit, who had also served on Satyam's audit committee, include professor of Business Administration and Senior Associate Dean at Harvard Business School Krishna Palepu, former dean of the Indian School of Business M Rammohan Rao, former Cabinet Secretary and Defense Secretary T R Prasad and former Director, Dean and Professor of the Indian Institute of Technology V S Raju.
The suit alleged that the former Satyam directors and audit committee members "were responsible for overseeing the preparation and integrity of the Company's financial statements; the engagement, performance, and compensation of the Company's independent auditors; and the adequacy and effectiveness of the Company's internal accounting and financial controls."
The lawsuit stemmed from the massive fraud perpetrated at Satyam by its founder and former chairman Ramalinga Raju who had revealed in January 2009 that the company forged thousands of invoices, business contracts and bank statements, maintained dual sets of account books and overstated assets by a total of more than a billion dollars.
Satyam was taken over by Indian IT firm Tech Mahindra in 2009 and renamed Mahindra Satyam.
In 2011, Mahindra Satyam agreed to pay USD 125 million to settle a class action suit filed against it in Manhattan federal court.