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SEC considers civil suit against India's Satyam

Thu, 09/30/2010 - 2:05am
ERIKA KINETZ - AP Business Writer - Associated Press

The U.S. Securities and Exchange Commission is considering a civil suit against India's Mahindra Satyam seeking damages for fraud in the aftermath of the company's near collapse.

News of the possible suit comes as Satyam's new owners struggle to clean up what was once India's fourth-largest technology outsourcing company after its founder confessed to a fraud of at least $1.7 billion.

Mahindra Satyam received a notice on Sept. 17, 2009 advising it that the SEC's enforcement division "had tentatively concluded" that the regulator should file a civil suit against the company "alleging fraud and other violations, and seeking permanent injunctions and monetary relief."

The possible suit was revealed in the fine print of the company's results for the financial years 2009 and 2010, which were released Wednesday and were its first statement of accounts since the fraud.

The company said the SEC has not yet made a final decision on the matter.

The investigation stems from misstatements in the company's financial reports before January 7, 2009 — the day founder Ramalinga Raju stunningly confessed to the largest fraud in Indian corporate history, saying he had been fiddling the books since 2000.

Mahindra Satyam also said its auditors had found a possible "diversion" of $41 million of proceeds from the company's 2001 share issue on the New York Stock Exchange.

Mahindra Satyam, which said last week it would voluntarily delist its shares from the New York Stock Exchange, also faces class action litigation in the United States District Court for the Southern District of New York from U.S. investors. The potential damages from that suit are unknown.

In November, 20 investors who bought the company's U.S. shares filed an additional complaint against the company and its former auditors, PricewaterhouseCoopers, asking for over $68 million in damages for their losses. That complaint has now been incorporated into the class action suit.

Thirty-seven companies in India are demanding repayment of 12.3 billion rupees ($274 million) plus 18 percent annual interest allegedly owed to them by Mahindra Satyam — claims the company maintains are unfounded.

Mahindra Satyam successfully settled a lawsuit for fraud and forgery filed in Texas by British telecom services company Upaid Systems Ltd. for $70 million. Upaid had been seeking $1 billion in damages.

Mahindra Satyam hired 100 forensic investigators to scrub the company's tainted books clean, but it said its investigation was incomplete, due in part to destroyed evidence. An ongoing criminal investigation also hindered access to crucial sources and records, like the computer files of the former chairman, managing director and chief financial officer.

The company, formerly called Satyam Computer Services Ltd., was bought by India's Tech Mahindra Ltd. in April 2009. It said Wednesday that it posted losses of over $1.8 billion on scandal-related expenses in fiscal years 2009 and 2010.

The stock was down 8.8 percent, to 90.25 rupees, in midafternoon trade in on the Bombay Stock Exchange in an otherwise flat market.

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