Tuesday, April 5, 2011
The SEC announced today that it filed a settled civil action against Satyam Computer Services Limited (“Satyam”), a foreign private issuer based in India, charging the company with fraudulently overstating the company’s revenue, income and cash balances by more than $1 billion over five years. The SEC’s complaint, filed in U.S. District Court in Washington, D.C., alleges that former senior officials at Satyam – an information technology services company based in Hyderabad, India – used false invoices and forged bank statements to inflate the company’s cash balances and make it appear far more profitable to investors. Although Satyam’s shares primarily traded on the Indian markets, its American depository shares traded on the New York Stock Exchange during the relevant period.
According to the SEC’s complaint, shortly after the fraud came to light in January 2009, the India government seized control of the company by dissolving Satyam’s Board of Directors and appointing new government-nominated directors; removed former top managers of the company; and oversaw a bidding process to select a new controlling shareholder in Satyam. In addition, Indian authorities filed criminal charges against several former officials.
In addition to the actions taken by the Indian authorities, Satyam, whose new leadership cooperated with the SEC’s investigation, has agreed to pay a $10 million penalty to settle the SEC’s charges, require specific training of officers and employees concerning securities laws and accounting principles, and improve its internal audit functions. In addition, it agreed to hire an independent consultant to evaluate the internal controls Satyam is putting in place.
The settlement also requires Satyam to hire an independent consultant and comply with certain undertakings.
In a related settlement, the Commission issued an Administrative Order that sanctioned Satyam’s former independent auditors for violations of federal securities laws and improper professional conduct while auditing the company’s financial statements from 2005 through January 2009. The PW India affiliates agreed to settle the SEC’s charges and pay a $6 million penalty, the largest ever by a foreign-based accounting firm in an SEC enforcement action.