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December 9, 2014

Satyam ex-chairman jailed in final chapter of accounting scandal

By Isabella Grotto

Indian software group Satyam Computer Services’s former chairman and founder Ramalinga Raju has been sentenced to six months in prison for his role in the $1.5bn international accounting fraud case that engulfed the company in 2009.

The decision marked the final chapter in the close to six-year fraud case which, in terms of scale and damage caused, echoed the 2001 Enron scandal in the US.

Raju was sentenced alongside four other former senior executives of Satyam, including his brother B. Rama Raju, who held the post of managing director at the time of the events.

Raju himself sparked the scandal on 7 January 2009 when he admitted to overstating revenue through a series of accounting tricks in a fraud worth more than INR70bn ($1.47bn).

The effects of the scandal were felt internationally as at the time the company was trading equity shares on the New York Stock Exchange as well as on the Indian market.

Satyam’s external auditor at the time, PwC also came under fire in the wake of the revelations. Four class actions were launched in the US against PwC International and legal action was brought by shareholders against Price Waterhouse (PW India), the network’s Indian firm.

Following the investigation, the US Securities and Exchange Commission (SEC) and the Public Company Accounting Oversight Board (PCAOB) fined PW India a total of $7.5m.

The ensuing legal battle between the Big Four network and Satyam was settled in 2011 by PwC for a further $25.5m.

Raju’s sentencing follows the lifelong ban extended by the Institute of Chartered Accountants India (ICAI) in April to three of its members as a consequence of their role in the case. This followed a previous ban of two audit managers under PwC’s Indian affiliate Lovelock & Lewes in 2011. The auditors received a lifelong ban from carrying out audit work in India, alongside INR500,000 ($9,706) fines.

The scandal has had a lasting effect, both on India’s technology sector and on its accounting industry. Earlier this year, ICAI issued guidance placing an unprecedented level of responsibility on auditors to act as whistleblowers in reporting fraud to the country’s authorities.

 

Related stories:

India envisages auditors as whistleblowers

PwC to pay $7.5m for Satyam audit failures

ICAI to bar Satyam auditors

Satyam auditors receive $9k fine and life ban

 

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