Why Syntel Director quit
By Sandhya

Indian origin IIT graduate Bharat Desai co-founded Syntel in 1980 and in the process became a billionaire and a respected member of the successful Indian community in USA.  Bharat Desai’s intelligence and hard work are credited for making Syntel a major player in the IT, KPO and BPO niche. He is also on one of the School Boards at Harvard.

But did Syntel Chairman Bharat Desai make a mistake in recruiting Mumbai and US educated Dr. Vasant Raval to the Syntel Board of Directors?

On March 10, 2010, Syntel issued a clinical press release which read: “Syntel, Inc. (Nasdaq:SYNT) announced today that it has received, as expected, a notice of deficiency from the NASDAQ Stock Market (NASDAQ). The non-compliance cited by NASDAQ is the result of Dr. Vasant Raval's resignation from Syntel's Board of Directors, disclosed in an 8-K issued by the Company on March 3, 2010.”

This brief note was the first public acknowledgement that Syntel was parting ways with its independent Director Vasant Raval who has joined them in 2004.  At that time Dr. Vasant Raval was Professor of Accounting and Chair, Department of Accounting at Creighton University.  The Syntel press release in 2004 announcing the appointment of Dr. Raval also mentioned the fact that their new Director also served on the Board of InfoUSA (NASDAQ: IUSA) and was Chair of its Audit Committee.

Yesterday (March 16, 2010), it was revealed that the  InfoUSA founder and CEO Vinod Gupta was running the company as his own piggy bank and had used $9.5 Million of official funds for personal expenses. And who was in charge of InfoUSA’s Audit Committee?  None other than Mr. Vasant Raval.

The US Governments SEC has accepted a ‘deal’ with Vasant Raval under which he will not officially admit any wrong doing at InfoUSA but will pay a fine of $50,000 and not serve in any public company for 5 years. So, Vasant had to resign from both InfoUSA and Syntel. The SEC document released on March 16  reads in part

“
SEC Charges Former Executives in Illegal Scheme to Enrich CEO With Perks

The Securities and Exchange Commission today charged three former senior executives and a former director of an Omaha-based database compilation company for their roles in a scheme in which the CEO funneled illegal compensation to himself in the form of perks worth millions of dollars.

The SEC alleges that Vinod Gupta, the former CEO and Chairman of infoUSA Inc. and infoGROUP Inc. (Info), fraudulently used corporate funds to pay almost $9.5 million in personal expenses to support his lavish lifestyle. He additionally caused the company to enter into $9.3 million of undisclosed business transactions between Info and other companies in which he had a personal stake.

The SEC also charged the former chairman of Info's audit committee, Vasant H. Raval, and two of the company's former chief financial officers, Rajnish K. Das and Stormy L. Dean, for enabling Gupta to carry out the scheme.

….

The SEC alleges that Raval failed to respond appropriately to various red flags concerning Gupta's expenses and Info's related party transactions with Gupta's other entities. Two Info internal auditors raised concerns to Raval that Gupta was submitting requests for reimbursement of personal expenses, yet Raval failed to take meaningful action to further investigate the matter and he omitted critical facts in a report to the board concerning Gupta's expenses.

…..

Gupta, Raval, and Info agreed to settle the SEC's charges without admitting or denying the allegations against them.

Raval agreed to pay a $50,000 penalty and consented to an order barring him from serving as an officer or director of a public company for five years. He also consented to a final judgment enjoining him from violations of Exchange Act Sections 10(b) and 14(a) and Rules 10b-5, 14a-3, and 14a-9, and from aiding and abetting Info's violations of Exchange Act Sections 13(a), 13(b) (2) (A), and 13(b) (2) (B) and Rules 12b-20 and 13a-1.
“

Obviously, the highly regarded Bharat Desai made a mistake when he roped in Vasant Raval to help oversee the running of Syntel.