While much of the attention is on how police in Hyderabad and investigators in Delhi are tackling the Satyam fraud case, there is a significant array of charges that the company and its deposed and disgraced chairman B. Ramalinga Raju is facing in the US on violating rules that involve accountability to American-listed shareholders.
Defrauding the market as a whole is a big “fraud-on-the-market” charge that encompasses accusations that Raju, who has admitted to cooking up profits, must answer.
About a dozen US-based securities and anti-trust firms have filed class action suits against the company.
A class action or a representative action is a form of lawsuit where a large group of people collectively bring a claim to court. This form of collective lawsuit originated in the United States and is still predominately a US phenomenon.
The plaintiffs claim that defendants artificially inflated the price of Satyam American Depositary Shares by issuing material misrepresentations to the market concerning the company's financial performance.
The “fraud-on-the-market” doctrine assumes that, in an efficient market, the market price of a stock is a direct reflection of all material information known to the market relating to the issuer. When such information is denied in part of whole, it can attract charges.
“All purchasers of Satyam’s American Depository Receipts (ADRs) relied on the market price of Satyam ADRs and suffered injury through purchase at artificially inflated prices,” said Cotchett, Pitre, Simon & MCCarthy of the US that has flied a class action complaint.