1. SEC Charges Satyam Computer Services With Financial Fraud
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SEC Charges Satyam Computer Services With Financial
Fraud
FOR IMMEDIATE RELEASE
2011-81
Washington, D.C., April 5, 2011 – The Securities and Exchange Commission
today charged India-based Satyam Computer Services Limited 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.
Additional Materials
SEC Complaint
Litigation Release No. 21915
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, India authorities filed criminal charges against several
former officials.
In addition to the actions taken by the India 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. Satyam also agreed to hire an
independent consultant to evaluate the internal controls the company is
putting in place.
In a related settlement, the SEC 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 actions of Indian and U.S. authorities have transformed Satyam into a
new company with new management, directors and investors and state-of-
the art controls, resulted in criminal charges against seven former
executives and given harmed shareholders the chance to recoup losses,”
said Robert Khuzami, Director of the SEC’s Division of Enforcement. “This
comprehensive and thoughtful response underscores the ability of regulators
across the globe to respond to cross-border misconduct in a coordinated
manner.”
http://www.sec.gov/news/press/2011/2011-81.htm[28-12-2011 20:05:06]

2. SEC Charges Satyam Computer Services With Financial Fraud
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 a
fraud of this scale represents a company-wide failure of extreme
proportions that cut across a wide array of functions from customer
invoicing to cash management.”
According to the SEC’s complaint, Satyam’s former senior managers
engineered a scheme that created more than 6,000 phony invoices to be
used in Satyam’s general ledger and financial statements. Satyam
employees created bogus bank statements to reflect payment of the sham
invoices. 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 inflated
revenues and profits “was like riding a tiger, not knowing how to get off
without being eaten.”
Raju and other former senior and mid-level Satyam executives, as well as
two 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 the
periodic reporting provisions of Sections 10(b), 13(a), 13(b)(2)(A) and
13(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 also
requires Satyam to pay a $10 million penalty, to hire an independent
consultant and to comply with certain undertakings. In bringing this settled
enforcement action, the SEC balanced the scope and severity of Satyam’s
misconduct and harm to holders of Satyam’s American Depository Shares
against the unique and significant remediation efforts made after the fraud
became public in 2009.
The SEC’s investigation is continuing.
# # #
For more information about this enforcement action, contact:
Cheryl J. Scarboro
Chief, 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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