Two US-based law firms - Izard Nobel LLP and Vianale & Vianale LLP - have filed class action lawsuits against Satyam Computer on behalf of software services firm's American Depository Receipts (ADR) holders.
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.
Glancy Binkow & Goldberg LLP said it filed a class action lawsuit against Satyam Computer Services Ltd. in the United States District Court for the Southern District of New York, on behalf of a class consisting of all purchasers of American Depositary Shares of Satyam Computer Services between 6 January 2004 and 6January 2009, both dates inclusive.
The complaint alleged that Satyam and certain of its executive officers and directors have violated federal securities laws. The plaintiff claims 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 complaint also stated that throughout the class period defendants issued financial information about the company, including information contained in certain of its Annual Reports to the US Securities and Exchange Commission, which was false and misleading.
A similar class action suit was also filed by Federman & Sherwood in the United States District Court for the Southern District of New York against Satyam Computer Services Ltd. The terms and conditions of the second law suit were similar to the first.
Will insurance protect Satyam?
Insurers for Satyam Computer Services, Tata AIG General Insurance Company Ltd and secondary insurers like New India Insurance and ICICI Lombard, are not likely to meet the liability claims from legal action against Satyam Computers for financial deception resulting in class action suits.
Directors and Officers (D&O) covers compensate a company and its directors for the cost of defending itself against legal actions. D&O liability cover is sold in layers with a primary insurer underwriting the first layer. Corporates in India had begun taking the D&O cover since 2005. In December 2005, stock exchanges in the country had imposed Clause 49 of the listing agreement on corporates, which sets corporate governance and accountability standards.
A confession to the fraud may be an important exclusion clause to the policy. However other directors may get protection under this policy.
The audit firm PricewaterhouseCooper may also have protection under D&O cover.