SEC fines Satyam & PwC for $16 mn
According to the SEC, Mahindra Satyam will pay $10 million in penalty to settle the SEC's charges of overstating the company"s revenue, income and cash balances by more than $1 billion over a period of five years. The company will also train its officers and employees concerning laws and accounting principles, and improve its internal audit. In addition Mahindra Satyam, has also agreed to hire independent consultant to check the internal controls it is putting in place.
The PwC India affiliates agreed to settle the SEC"s charges and pay a $6 million fine; the largest ever by a foreign-based accounting firm in an SEC enforcement action. In addition, the PwC India affiliates also agreed to refrain from accepting any new U.S.-based clients for a period of six months, establish training programs for its officers and employees on securities laws and accounting principles; revise its audit policies and procedures; and appoint an independent monitor to ensure these measures are implemented.
The SEC found that the audit failures by the PwC India affiliates – Lovelock & Lewes, Price Waterhouse Bangalore, Price Waterhouse & Co. Bangalore, Price Waterhouse Calcutta, and Price Waterhouse & Co. Calcutta – were not limited to Satyam, but was a quality control failure throughout PwC India
In the press release, Robert Khuzami, Director of the SEC"s Division of Enforcement was quoted as, “The actions of Indian and U.S. authorities have transformed Satyam into a new company with new management, directors and investors and state-of-the art controls, resulted in criminal charges against seven former executives and given harmed shareholders the chance to recoup losses." He further added, “This comprehensive and thoughtful response underscores the ability of regulators across the globe to respond to cross-border misconduct in a coordinated manner."
In a related proceeding, the PwC India affiliates also reached a settlement with the Public Company Accounting Oversight Board (PCAOB) in which the PW India firms have been censured and agreed to undertakings similar to SEC administrative order.
Additionally, Lovelock & Lewes and Price Waterhouse Bangalore have agreed to pay the PCAOB a $1.5 million penalty for their violations of PCAOB rules and standards in relation to the Satyam audit engagement.
Ramalinga Raju, the founder and former chairman of Satyam revealed to the investors in January 2009 that the company had overstated earnings and assets for several years. The scandal was regularly referred to as "India's Enron", in the media.
This caused the share prices to plummet. In February Mahindra Satyam agreed to pay $125 million to settle the US shareholders litigation.
While accepting the SEC's settlement, Mahindra Satyam did not admit wrongdoing. Once India's fourth-largest outsourcing company, Mahindra Satyam in September posted a net loss of Rs 130 crore for the fiscal year ended the previous March. It was the first time it had revealed financial results since the scandal.