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UPDATE 1-India's fraud office investigates Sesa Goa

Published: 28 Oct 2009 22:08:59 PST

* Probe to look into financial, other irregularities

* Investigation to be completed in 6 months

* Shares fall as much as 6 pct (Recasts, adds details, comments from brokerage)

MUMBAI, Oct 29 - India's Sesa Goa, a $5 billion unit of London-listed Vedanta Resources, is being investigated by the Indian government for financial and other irregularities, sending its shares down as much as 6 percent.

India's largest iron-ore exporter said it and its unlisted Sesa Industries Ltd (SIL) subsidiary were under investigation by the Serious Fraud Investigation Office (SFIO), and the probe had to be completed in six months.

"The scope of investigation includes looking into the state of affairs of the company and SIL in respect of mismanagement, malpractices, financial and other irregularities," Sesa Goa said in a statement.

By 0530 GMT, shares in Sesa Goa were down 3 percent in a weak broader market.

The shares fell 12 percent on Tuesday after local media first reported the investigation. Sesa said then it was unaware of any probe, and its shares rose 7 percent on Wednesday after earlier dropping to a 3-week low.

"Sesa Goa is expanding its mining operations in India, and this might have invited regulatory scrutiny," said Deven Choksey, chief executive of K.R. Choksey Shares and Securities.

"Otherwise it is very confusing and there is no clarity on what this investigation is all about."

In 2007, Vedanta bought a 51 percent stake in Sesa Goa for nearly $1 billion from Japan's Mitsui & Co.

In January, IT services firm Satyam Computer was hit by India's largest corporate fraud when founder and chairman Ramalinga Raju said profits had been falsely inflated for years.

That $1 billion-plus fraud prompted calls for more transparency in the accounting practices of Indian firms.

Sesa Goa said on Thursday it believed the investigation originated from a complaint filed by a shareholder of Sesa Industries Ltd in 2003. It said it had received requests from the Registrar of Companies for information from 2001 to 2009.