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January 9, 2012

PwC’s Indian firm sued Satyam for $1bn

PwC’s Indian member firm, PW India, is suing Satyam and its former management for more than INR1bn ($19m) in compensation and damages caused by India’s largest corporate fraud.

The firm is incensed over Satyam’s attempt to shift the blame onto PwC after Satyam founder B Ramalinga Raju confessed he overstated the company’s profits and created a fictitious cash balance of more than $1bn in January, 2009.

The subsequent negative press caused by the scandal is likely to have caused reputation damage for PwC but the auditor’s lawsuit is also in response to a lawsuit Satyam filed against its former board members and PW India only a couple of days ago. Current Satyam chairman Vineet Nayyar accused the former auditors of colluding with the former management in the fraud.

PW India viewed Satyam’s lawsuit as a crude attempt to blame auditors for the crimes of management and has hit back with its own legal claim.

“PW India is outraged that Satyam is attempting to shift responsibility to the auditors for the consequences of a carefully and deliberately concealed fraud that was undertaken at the direction of its own senior management,” the firm said. 

“The fraud perpetrated by Satyam was specifically designed to – and did – circumvent Satyam’s own internal controls and PW India’s audit process, and consequently PW India was a victim of Satyam’s fraud, and will defend itself vigorously against Satyam’s baseless contentions.”

PW India is yet to receive punishment from Indian authorities although it has been reprimanded by the US regulator and audit authority.

The US Securities and Exchange Commission ordered PW India to pay $6m in fines while the US Public Company Accounting Oversight Board dished out a penalty of $1.5m for violations in connection to the Satyam audit in April 2011.

Individuals at PW India have been punished by the Institute of Chartered Accountants of India.

Former PwC partner Talluri Srinivas was found guilty of professional misconduct last week and is due to be punished this week. Two audit managers from PW India affiliate Lovelock & Lewes, C Ravindranath and P Sivaprasad, received a lifetime ban from auditing as well as fines of INR500,000 ($9,706).

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