U.S. Settles Fraud Allegations In ‘India’s Enron’

India-based Satyam Computer Services Ltd. and its former auditors -- all Indian affiliates of the U.S. auditing firm PricewaterhouseCoopers (PwC) -- settled with U.S. regulators on Tuesday for a combined $17.5 million to resolve the probe into what became known as “India’s Enron,” reported Reuters.

Satyam’s settlement does not require the company to acknowledge or deny any wrongdoing, said Barron’s, though its officers and employees will be required to undergo mandatory accounting and securities law training, reported the Wall Street Journal.

Satyam, which Reuters reported was once India’s fourth-largest IT outsourcing company, was accused by the Securities and Exchange Commission (SEC) of fraudulently overstating its revenue, income and cash balance by more than $1 billion over the course of five years, according to the SEC’s complaint, which was filed April 5 in U.S. District Court in Washington, D.C.

In addition to using false invoices, the SEC complaint alleged that Satyam forged bank statements to exaggerate its cash balances, thus making the company look more desirable to investors.

Satyam agreed to pay $10 million to the SEC, said the New York Times.

Also, two of Satyam’s Indian auditors together will pay the Public Company Accounting Oversight Board (PCAOB) $1.5 million to resolve a disciplinary order against them, which is in addition to the $6 million the SEC levied against all five affiliates, according to the PCAOB. The combined $7.5 million payment agreement represents “the largest penalty that the SEC and PCAOB have assessed against any registered foreign accounting firm,” the PCAOB said.

All the Indian firms are also barred from accepting any new U.S-based clients for six months, the PCAOB said. The PwC affiliates must also revise their audit policies and procedures and will be subject to independent monitoring to guarantee this is being done, said the SEC.

When the Satyam fraud came to light in January 2009 after a public admission made by the company’s former CEO, Satyam’s shares on the New York Stock Exchange plunged precipitously, resulting in a $125 million payout from Satyam to settle a class action lawsuit brought by U.S. shareholders, said Forbes.

Shortly after the CEO’s announcement, India’s government dissolved Satyam’s board and appointed government-chosen directors, while criminal charges were filed against several former company officials, according to the SEC complaint.

The SEC alleged that the Indian auditors facilitated the “massive accounting fraud,” thus enabling Satyam to swindle investors, said the Journal. According to the SEC and the PCAOB, the auditors “didn’t perform the proper procedures to confirm [Satyam’s] cash balance” because they relied on the Satyam’s own management to get bank confirmations instead of getting them themselves, the Journal said.

Satyam shares soared by more than 9 percent on the Bombay Stock Exchange after news of the company’s settlement with the U.S. probes became public, said the Business Standard, an Indian daily news site.