Thursday, April 9, 2009

Nine Charged in Hyderabad in Satyam Fraud

As elections loom, Price Waterhouse auditors, former chairman Raju, and others are accused of falsifying accounts and other crimes.

Three months after B. Ramalinga Raju, former chairman of Satyam Computer Services (SAY), confessed to a $1 billion fraud, India's Central Bureau of Investigation (CBI) filed charges on Apr. 7. The 300-page charge sheet for "criminal conspiracy, cheating, and forgery and falsification of accounts and for causing disappearance of evidence" was filed in a Hyderabad court against nine people associated with the Satyam mess. They include Raju, his brother Rama Raju, Chief Financial Officer Srinivas Vadlamani, and two Price Waterhouse auditors.

The CBI's charges, which cite 433 witnesses, came nine days before India is to go to the polls on Apr. 16. For the past three months, New Delhi and regulators have been under pressure to conclude investigations quickly to minimize the damage to an already dented Satyam. They also wanted to wrap up the case lest it become an election issue. The CBI says it completed the investigation in "record time" of 45 days.

Satyam CFO Vadlamani, who had earlier denied involvement with the fraud, had vouched for the Price Waterhouse auditors—S. Gopalakrishnan and Srinivas Talluri—on Apr. 5. "They were given forged documents by the company management," he told representatives of the Mumbai-based Institute of Chartered Accountants of India, who met the CFO in Hyderabad's Chanchalguda prison. The Rajus and the PW auditors are lodged in the same jail.

Litigation against PwC in the U.S.
The global auditing firm, however, disputed the CBI statement and said it is "surprised and disappointed" by the charges. "The fraud perpetrated by Mr. Raju and his cohorts was designed to, and did, circumvent PW India's audit process. The audit partners were victims of that fraud," said a Price Waterhouse media release. The firm had suspended the two partners "from all duties" in January to facilitate the Satyam inquiries.

A couple of weeks ago, the firm even named two additional auditors who worked on the Satyam account as part of its disclosure to the accountants institute. Since then, Price Waterhouse, the auditing arm of PricewaterhouseCoopers, has been struggling to refurbish its image in India and distance itself from Satyam. The firm is facing a class action in U.S. courts, and many of its clients in India are concerned.

Now that the investigations have concluded, it is a matter of days before Satyam is likely to be sold. The company already has a list of suitors including Wilbur L. Ross Jr., the New York-based investor and rehabilitator of distressed assets globally, construction and engineering conglomerate Larsen & Toubro (LART.BO), Tech Mahindra (TEML.BO), and private equity firm Apax Partners.

But bidders have complained about a lack of transparency and the need for access to Satyam's books. Like everything concerning Satyam, even the sale is mired in controversy.

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