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Mahindra Satyam, the fraud-hit IT services company, and Securities and Exchange Commission (the US stock market regulator) have settled civil action, initiated against Satyam Computer Services for financial fraud, for $10 million. The two entities have made separate statements on Tuesday in this regard.
In the same fraud, the SEC slammed five India-based affiliates of PricewaterhouseCoopers (PwC), which formerly served as independent auditors of Satyam, for “repeatedly conducting deficient audits of the company's financial statements and enabling a massive accounting fraud to go undetected for several years.”
Besides paying a civil penalty of $10 million, Mahindra Satyam agreed to comply with the US federal securities laws, hire an independent consultant, and comply with certain undertakings.
In its complaint in US District Court in Washington, the SEC alleged that former Satyam officials used false invoices and forged bank statements to inflate the company's cash balances and made it appear far more profitable to investors during 2003-2008.
“We settled it without admitting or denying allegations of any wrongdoing, which concludes the SEC's investigation of accounting issues as to the company,” Mr Vineet Nayyar, Chairman of Mahindra Satyam, said here in a statement on Tuesday.
The settlement would smoothen Mahindra Satyam's efforts to relist the ADRs on New York Stock Exchange.
Markets responded positively with company's share price going up by 6 per cent to Rs 74.90 on Wednesday evening from the previous day's close of Rs 70.65.
Price Waterhouse
“Price Waterhouse India violated its most fundamental duty as a public watchdog by failing to comply with some of the most elementary auditing standards and procedures in conducting the Satyam audits,” said Mr Robert Khuzami, Director of the SEC's Division of Enforcement, said in the statement.
The five Price Waterhouse India affiliates in question were Lovelock & Lewes, Price Waterhouse Bangalore, Price Waterhouse & Co. Bangalore, Price Waterhouse Calcutta, and Price Waterhouse & Co. Calcutta.
“The SEC found that the audit failures by the Price Waterhouse India affiliates were not limited to Satyam, but rather indicative of a much larger quality control failure throughout Price Waterhouse India,” it said.
The SEC sanction mandated Price Waterhouse India not to take up audit work for its US clients for six months. The audit firm affiliates agreed to settle the Exchange charges by paying a penalty of $6 million.
PCAOB action
In a related proceeding, the Price Waterhouse India affiliates also reached a settlement with the Public Company Accounting Oversight Board (PCAOB) in which the Price Waterhouse India firms have been censured. Lovelock & Lewes and Price Waterhouse Bangalore have agreed to pay the board a $1.5 million penalty.
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