sec charges satyam computer services with financial fraud
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SEC Charges Satyam Computer Services With Financial Fraud
http://www.sec.gov/news/press/2011/2011-81.htm[28-12-2011 20:05:06]
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SEC Charges Satyam Computer Services With FinancialFraud
FOR IMMEDIATE RELEASE2011-81
Washington, D.C., April 5, 2011 – The Securities and Exchange Commissiontoday charged India-based Satyam Computer Services Limited withfraudulently overstating the company’s revenue, income and cash balancesby more than $1 billion over five years.
The SEC’s complaint, filed in U.S. District Court in Washington, D.C., allegesthat former senior officials at Satyam – an information technology servicescompany based in Hyderabad, India – used false invoices and forged bankstatements to inflate the company’s cash balances and make it appear farmore profitable to investors. Although Satyam’s shares primarily traded onthe Indian markets, its American depository shares traded on the New YorkStock Exchange.
Additional MaterialsSEC ComplaintLitigation Release No. 21915
According to the SEC’s complaint, shortly after the fraud came to light inJanuary 2009, the India government seized control of the company bydissolving Satyam’s board of directors and appointing new government-nominated directors; removed former top managers of the company; andoversaw a bidding process to select a new controlling shareholder inSatyam. In addition, India authorities filed criminal charges against severalformer officials.
In addition to the actions taken by the India authorities, Satyam, whosenew leadership cooperated with the SEC’s investigation, has agreed to paya $10 million penalty to settle the SEC’s charges, require specific training ofofficers and employees concerning securities laws and accounting principles,and improve its internal audit functions. Satyam also agreed to hire anindependent consultant to evaluate the internal controls the company isputting in place.
In a related settlement, the SEC sanctioned Satyam’s former independentauditors for violations of federal securities laws and improper professionalconduct while auditing the company’s financial statements from 2005through January 2009.
“The actions of Indian and U.S. authorities have transformed Satyam into anew company with new management, directors and investors and state-of-the art controls, resulted in criminal charges against seven formerexecutives and given harmed shareholders the chance to recoup losses,”said Robert Khuzami, Director of the SEC’s Division of Enforcement. “Thiscomprehensive and thoughtful response underscores the ability of regulatorsacross the globe to respond to cross-border misconduct in a coordinatedmanner.”
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SEC Charges Satyam Computer Services With Financial Fraud
http://www.sec.gov/news/press/2011/2011-81.htm[28-12-2011 20:05:06]
Cheryl Scarboro, Chief of the SEC’s Foreign Corrupt Practices Act Unit,added, “The fact that Satyam’s former top officers were able to maintain afraud of this scale represents a company-wide failure of extremeproportions that cut across a wide array of functions from customerinvoicing to cash management.”
According to the SEC’s complaint, Satyam’s former senior managersengineered a scheme that created more than 6,000 phony invoices to beused in Satyam’s general ledger and financial statements. Satyamemployees created bogus bank statements to reflect payment of the shaminvoices. This resulted in more than $1 billion in fictitious cash and cash-related balances, representing half the company’s total assets.
The SEC alleges that when the fraud was finally revealed, Satyam’s then-Chairman, B. Ramalinga Raju, declared that maintaining Satyam’s inflatedrevenues and profits “was like riding a tiger, not knowing how to get offwithout being eaten.”
Raju and other former senior and mid-level Satyam executives, as well astwo lead engagement partners from Satyam’s former external audit firm,are defendants in a criminal trial now underway in India.
Without admitting or denying the allegations in the SEC’s complaint,Satyam agreed to a permanent injunction against future violations of theperiodic reporting provisions of Sections 10(b), 13(a), 13(b)(2)(A) and13(b)(2)(B) of the Securities Exchange Act of 1934 and Rules 10b-5, 12b-20 13a-1 and 13a-16. As previously mentioned, the settlement alsorequires Satyam to pay a $10 million penalty, to hire an independentconsultant and to comply with certain undertakings. In bringing this settledenforcement action, the SEC balanced the scope and severity of Satyam’smisconduct and harm to holders of Satyam’s American Depository Sharesagainst the unique and significant remediation efforts made after the fraudbecame public in 2009.
The SEC’s investigation is continuing.
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For more information about this enforcement action, contact:
Cheryl J. ScarboroChief, FCPA Unit of the SEC Division of Enforcement 202-551-4403
http://www.sec.gov/news/press/2011/2011-81.htm
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