Satyam Said to Draw SEC Scrutiny in Accounting Case

Jan. 20 (Bloomberg) -- The U.S. Securities and Exchange Commission is investigating whether India’s Satyam Computer Services Ltd. misled investors in an alleged $1 billion accounting fraud, two people familiar with the matter said.

Officials from the SEC have discussed the case with counterparts in India and plan to coordinate inquiries involving the nation’s fourth-biggest software exporter, one of the people said. The people declined to be identified because the SEC’s role in the case isn’t public.

Satyam Chairman Ramalinga Raju said on Jan. 7 that he had fabricated $1 billion of cash and assets, sparking an 85 percent plunge in the stock. American depositary receipts for the Hyderabad-based company trade in New York, requiring it to file financial statements with U.S. regulators and submit to their jurisdiction.

“It’s too big a matter for the SEC to take a pass,” said Charles Clark, a former SEC enforcement attorney who now works at Kirkland & Ellis LLP in Washington. “What will make it challenging is the practicalities of investigating a fraud in a country that’s incredibly far away.”

SEC spokesman John Nester declined to comment. “We haven’t got any information about the investigation,” a Satyam spokesperson said in a text message.

Price Waterhouse

India’s inquiries are being led by teams from the Andhra Pradesh state police’s criminal investigation department, the markets regulator, the independent accounting body and the government’s serious-fraud office.

In a Jan. 7 letter to Satyam directors, Raju said he had falsified the accounts “for several years” and quit. He and his brother Rama, the managing director, were detained Jan. 9 on charges including forgery, breach of trust and criminal conspiracy. India’s government fired other directors and appointed a new board to oversee the company.

The SEC will probably examine whether Satyam’s auditor, Price Waterhouse India, ignored irregularities and may look into what role the accounting firm’s U.S. affiliate played in checking financial reports, said James Coffman, a former SEC attorney who investigated auditors including Arthur Andersen LLP.

“Even if the U.S. firm didn’t perform the audit, they may have been reckless in terms of signing off on the audit or knowing that the audit didn’t comply” with U.S. accounting standards, Coffman said. Regulators haven’t accused the auditing firm of wrongdoing in the case.

Suspect Documents?

Mike Davies, a PricewaterhouseCoopers LLP spokesman who is based in London, said the U.S. firm “was the reviewer for the U.S. filings for Satyam.” He declined to elaborate. A spokesman for Price Waterhouse India couldn’t be reached for comment.

In a letter to Satyam directors disclosed to the Bombay Stock Exchange Jan. 14, the firm said its audit reports for the company could no longer be relied upon after Raju’s alleged admissions.

“We placed reliance on management controls over financial reporting, and the information and explanations provided by the management,” the firm said in the letter.

PricewaterhouseCoopers LLP has a “vigorous global network” allowing member firms to “operate simultaneously as the most local and the most global of businesses,” the firm says on its Web site. The site also includes a disclaimer that each member firm “is a separate and independent legal entity.”

Satyam had used forged documents from four banks including Citigroup Inc. and HSBC Holdings Plc to inflate assets by $1 billion, the Wall Street Journal reported today, citing an unidentified person familiar with India’s probe.