Satyam Computer Services and the US Securities and Exchange Commission have decided to settle a civil litigation, pertaining to a massive fraud perpetrated by its promoters. Mahindra Satyam, the brand name by which the company now calls itself, will pay $10 million or Rs 45 crore to the SEC.
It will also undertake specific training of employees in the areas of securities laws and accounting, and improve internal controls. The company will appoint an independent consultant to evaluate its internal controls as well. The settlement has been made, without admitting to any of the allegations filed in the SEC complaint.
The SEC has considered the efforts by the Indian government and regulators to take action against the people who committed this fraud and its efforts to put the company back on its feet. Ultimately, this culminated in the company being put up for sale, a process overseen by a government-mandated board, and being bought by the Mahindra group’s software company Tech Mahindra.
The SEC came into the picture because Mahindra Satyam’s shares, in the form of American Depositary Receipts, were also listed on the NYSE. The SEC said, in a formal complaint, that Mahindra Satyam’s US institutional investors lost about $450 million due to the share price fall, when the fraud was revealed.
The $1 billion fraud, the complaint goes on to state, was done by Mahindra Satyam’s senior managers, who passed about 6,000 fake invoices which showed as fictitious income and cash balances. Its actions violated federal securities laws. The SEC asked US District Court, District of Columbia, to levy suitable monetary penalties on Mahindra Satyam, in addition to prohibiting the company from further violations of applicable US laws.
The penalty is relatively light compared to what may have happened if the case had been fought in the courts. Civil damages tend to be quite damaging, which aim to undo the financial harm caused to the victims and can also have a punitive element.
The SEC statement said: “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.” Mahindra Satyam’s co-operation with the SEC has also been mentioned. The SEC has separately charged Mahindra Satyam’s auditors, PriceWaterhouseCoopers
This brings to an end one more chapter in the Satyam scam. The company had entered into a settlement with Upaid Systems in December 2009, by paying about $70 million. At present, the company is facing another big challenge, with the income tax department asking it to pay back taxes after it restated its accounts.
Recently, the company was asked by the High Court of Andhra Pradesh, as part of this dispute, to deposit Rs 350 crore with the court and issue a bank guarantee of Rs 267 crore, after which its bank accounts would be available to the company. Earlier, its bank accounts had been frozen.
Apart from this income tax dispute, Mahindra Satyam also faces a class action suit in the US from investors who have lost money after the scam was disclosed. The court cases are one of the reasons why the company is being retained as a separate entity. The Mahindra group intends to merge it with Tech Mahindra.
The Satyam stock jumped by 6% on Wednesday, as the settlement amount was not very high. The Tech Mahindra stock was up by 1.8%.
Read the statement from Mahindra Satyam here.
Read the SEC statement here and the complaint here.