Satyam Sued by Investors in Three U.S. Lawsuits Over Fraud

By Thom Weidlich

Jan. 10 (Bloomberg) -- Satyam Computer Services Ltd. was sued by investors in at least three class-action lawsuits in federal court in the U.S. after its shares in Mumbai plunged to record lows when its chairman said he falsified accounts.

Hossein Momenzadeh, who bought 75 shares of the Indian software company’s American depositary receipts in July 2007 at $26.50 each, sued Jan. 8 on behalf of all purchasers of the ADRs from January 2004 to January 2009. Aekta Ben Patel, who bought 100 shares in July 2007 at $27 each, sued Jan. 7, the day Satyam Chairman Ramalinga Raju revealed the fraud.

“When the truth was revealed,” the ADRs “lost nearly their entire value,” Momenzadeh’s lawyers wrote in his complaint.

In a letter to directors, Raju said he falsified the accounts “for several years” and quit. The scandal has eroded $2.2 billion in shareholder wealth. Raju and his brother Rama were arrested yesterday and the remaining directors of the software exporter were fired, as India started investigating an alleged $1 billion fraud.

Melissa Baratta, a spokeswoman for Hyderabad-based Satyam in New York, declined to comment. “At this point we really can’t speak to anything beyond what the company has already made public,” she said.

The ADRs, each of which represents two ordinary Satyam shares, fell $8.42, or 90 percent, to 93 cents before the opening of the New York Stock Exchange on Jan. 7, when trading was halted.

PricewaterhouseCoopers

An additional investor class action, or group lawsuit, was filed yesterday in federal court in San Jose, California, naming Satyam as well as auditor PricewaterhouseCoopers. David Nestor, a spokesman for the accounting firm, said he hadn’t seen the lawsuit and couldn’t comment on it.

Kenneth Vianale, one of Patel’s lawyers, said his firm was already investigating Satyam.

“We were gearing up to sue them before this news hit,” he said yesterday in a phone interview. “There was other stuff that caught our notice. They had a big stock-price drop in December.”

On Dec. 16, the ADRs fell a record 55 percent to $5.70 after shareholder objections led the company to scrap a plan to spend $1.6 billion buying two companies owned by Raju’s family.

The shareholders face difficulty recouping their investments, said Shaalu Mehra, the Menlo Park, California-based chairman of the law firm Perkins Coie’s outsourcing and India practices.

‘Kill Any Viability’

“The indications are that Satyam isn’t going to have sufficient cash reserves to make it to the end of the month,” Mehra said in a phone interview. “The mass departure of their customers is going to kill any viability that they had.”

Robert Harwood, one of Momenzadeh’s lawyers, said he’s been contacted by “a number of other people with some significant shareholdings” in Satyam. “They’re quite unhappy,” said Harwood, of Harwood Feffer in New York.

The New York cases are Patel v. Satyam Computer Services Ltd., 09-cv-93, and Momenzadeh v. Satyam Computer Services Ltd., 09-cv-161, U.S. District Court, Southern District of New York (Manhattan).

To contact the reporter on this story: Thom Weidlich in New York at tweidlich@bloomberg.net.