By Harichandan Arakali and Saikat Chatterjee
Jan. 24 (Bloomberg) -- PricewaterhouseCoopers LLP’s Indian affiliate, the auditor of Satyam Computer Services Ltd., said two partners were arrested by police as authorities extended the nation’s largest fraud inquiry.
Srinivas Talluri and S. Gopalakrishnan were remanded to judicial custody on charges of “conspiracy and co- participation,” A. Shivanarayana, a police spokesman in Andhra Pradesh state, said from the province’s capital Hyderabad, where Satyam is based. Price Waterhouse said in an e-mailed statement it didn’t know why two partners were detained.
Seven years after the implosion of Enron Corp. led to the dissolution of accounting firm Arthur Andersen LLP, the Satyam case has put PricewaterhouseCoopers in the spotlight. Indian police, fraud squad, markets regulator and accounting body have started investigations after Satyam founder Ramalinga Raju said Jan. 7 that he had fabricated $1 billion of assets.
“Over the last fortnight, the firm has fully cooperated in all inquiries and has provided the documents called for by the Indian authorities,” Price Waterhouse said today in a statement from New Delhi. “We greatly regret that two Price Waterhouse partners have been detained today for further questioning.”
PricewaterhouseCoopers LLP may also face scrutiny in the U.S. after Satyam’s New York-listed equities lost 82 percent of their market value in two weeks. The U.S. Securities and Exchange Commission is investigating whether Satyam misled investors and officials from the SEC plan to coordinate inquiries with counterparts in India.
Fudged Accounts
The auditing firm said Jan. 15 that its reports could no longer be relied on after former chairman Raju said he’d fudged the accounts. The Institute of Chartered Accountants of India, a statutory body which oversees auditors, will report on its investigation into Price Waterhouse on Feb. 11.
Prosecutors allege Satyam padded employee numbers to siphon off cash and forged documents to support fake bank deposits.
Satyam had about 33 billion rupees ($674 million) of “fictitious and non-existent” accounts, public prosecutor K. Ajay Kumar told a hearing on Jan. 22. The company had about 40,000 employees, compared with the 53,000 claimed by Satyam, he said.
India’s biggest corporate fraud investigation is 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.
Separate Entity
Satyam’s state-appointed board has almost arranged funds to help tide over a cash crunch till the end of March, the company said yesterday. The board has hired KPMG and Deloitte Touche Tohmatsu to restate the accounts.
Satyam is struggling to raise cash to pay salaries after Raju said he had falsified accounts for several years. It is also battling to stop off customers from joining State Farm Mutual Automobile Insurance Co. in canceling contracts.
Price Waterhouse has offices in nine Indian cities, according to the firm’s Web site. The Indian operation is a separate legal identity from PricewaterhouseCoopers International Ltd., according to the Web site.
The auditor’s clients include Maruti Suzuki India Ltd., maker of half the cars in the country, and the local units of Colgate-Palmolive Co., the world’s largest toothpaste maker.
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.”
Larsen & Toubro
Larsen & Toubro Ltd., India’s biggest engineering company, yesterday tripled its stake in Satyam to give it greater say in the rescue of the software exporter.
Larsen bought shares in the open market to triple its holding from 4 percent, Chief Financial Officer Y.M. Deosthalee said in by telephone from Mumbai, where the company is based.
Satyam’s board has short-listed three candidates each for the positions of chief executive officer and chief financial officer and an announcement will be made in the coming week, Satyam said yesterday.
Delays in raising funds and appointing a chief executive officer are costing Satyam customers. At least two of them have given notice about terminating their contracts, board member Kiran Karnik said on Jan. 21.
To contact the reporters on this story: Harichandan Arakali in Bangalore at harakali@bloomberg.net; Saikat Chatterjee in New Delhi at schatterjee4@bloomberg.net.
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