Call it an admission of guilt or an out-of-court settlement, ADA Group chairman Anil Ambani has coolly walked away by signing a Rs 50-crore cheque for the market regulator. This is the largest-ever settlement in the history of the Indian capital market where two high profile companies, Reliance Infrastructure Ltd and Reliance Natural Resource Ltd (RNRL), and also half-a-dozen top notch directors escaped punishment by paying a hefty penalty.
Globally, consent settlements are very common. Two days ago, Charles Schwab made a USD 118 million settlement with the Securities Exchange Commission (SEC) for escaping punishment for fraud charges against two of its companies.
In the past, the Securities and Exchange Board of India (Sebi) has arrived at hundreds of out-of-court settlements, since the introduction of the consent settlement scheme way in April 2007. The most prominent cases are the private sector Development Credit Bank and Swiss giant UBS. In fact, Sebi has collected over Rs 100 crore through various consent schemes as of March 2010.
Anil's elder brother Mukesh Ambani's Reliance Industries has also knocked on Sebi's doors for a consent order against an insider trading case relating to its subsidiary Reliance Petroleum Ltd.
But the big question which Sebi will face after Anil Ambani's case is whether serious offenders with financial muscle can walk away simply by paying a penalty.
In June this year, Sebi began a full-fledged probe against ADA Group companies and its directors when they found that the amount raised towards external commercial borrowings (ECB) and foreign currency convertible bonds (FCCB) by ADA Group companies was used to invest in stock market activities.
Four months later, Ambani and the other directors voluntarily approached the market regulator for a consent settlement.
The settlement now agreed upon involves Reliance Infra and RNRL keeping away from investing in listed companies in the secondary market until Dec 2012, and bars the directors - including Anil Ambani - from investing in the secondary market until Dec 2011.
There is no bar, however, on the two companies raising money through primary issuance or buying back shares, or open offers for acquiring any companies.
The order will definitely have an adverse impact on the image of the ADA Group in the minds of the investing community.