Satyam, PWC units to pay penalties for accounting frauds

To settle the US Securities and Exchange Commission's suit, filed in a Washington federal Court, Satyam Tuesday agreed to pay a $10 million penalty while five PricewaterhouseCoopers LLP affiliates in India that audited Satyam agreed to a $6 million civil penalty.

It was the largest ever penalty to be paid by a foreign-based accounting firm in an SEC enforcement action to settle allegations that they conducted deficient audits of the company's financial statements from 2005 to January 2009.

Satyam also agreed to require its officers and employees to undergo training on securities laws and accounting principles, amp up its internal audit functions, and hire an independent consultant to evaluate those new internal controls, the commission said.

The SEC complaint alleges that former officers of the Hyderabad-based information technology service provider forged bank statements and more than 6,000 fake invoices to overstate the company's revenue, income and cash balances by more than $1 billion from at least 2003 through September 2008.

The Public Company Accounting Oversight Board (PCOAB) also announced its own settled disciplinary order against the five PricewaterhouseCoopers affiliates based in India, all of which the board said had violated its quality control standards. The board said it issued a $1.5 million penalty against two of the firms.

The complaint follows a Wells notice that the SEC issued to Satyam in September 2009 after the massive fraud was unveiled that January, when the company's then-chairman B. Ramalinga Raju disclosed financial irregularities.

That year, the Indian government took over the company by replacing the members of its board of directors and removing former top managers, the SEC noted.

Satyam's new leadership has been cooperating with the SEC's ongoing probe of the scheme, and the company did not admit or deny any allegations in the immediate complaint, the agency said.

The commission claimed that the audit failures of Lovelock & Lewes, Price Waterhouse Bangalore, Price Waterhouse & Co. Bangalore, Price Waterhouse Calcutta and Price Waterhouse & Co. Kolkata were evidence of a quality control problem that extended beyond Satyam to all of the units' work in India.

In an SEC order enforcing the sanctions, the units also agreed not to take on any new US-based clients for the next six months and to set up securities laws and accounting principles training programmes for its officers and employees,

It would also revise its audit policies and procedures, establish new pre-opinion review controls, and appoint an independent monitor to make sure it adheres to the promised changes.

In both the SEC and PCOAB deals, the accounting firm's affiliates did not admit or deny the regulators' allegations. PricewaterhouseCoopers International Chairman Dennis Nally said in a company statement that India is still a key market for the company.

"The last two years have been challenging for PW India, but I believe that PW India has learned the lessons of Satyam, made the right changes and is on a sound footing to move forward, dedicated to quality work," Nally said.

Satyam's deal with the SEC follows a $125 million class settlement agreement it struck in February to exit multidistrict securities litigation brought by investors who claimed the company cost them billions of dollars by inflating its value.