PWC Pays Largest Ever Settlement to SEC over Satyam

The United States Securities and Exchange Commission (SEC) has sanctioned five India-based affiliates of PricewaterhouseCoopers (PwC) that formerly served as independent auditors of Satyam Computer Services Limited (currently Mahindra Satyam) for repeatedly conducting deficient audits of the company's financial statements and enabling a massive accounting fraud to go undetected for several years.

The SEC found that the audit failures by the PW India affiliates – Lovelock & Lewes, Price Waterhouse Bangalore, Price Waterhouse & Co. Bangalore, Price Waterhouse Calcutta, and Price Waterhouse & Co. Calcutta – were not limited to Satyam, but rather indicative of a much larger quality control failure throughout PW India.

The PW India affiliates agreed to settle the SEC's charges and pay a $6 million penalty, the largest ever by a foreign-based accounting firm in an SEC enforcement action. In addition, the PW India affiliates agreed to refrain from accepting any new U.S.-based clients for a period of six months, establish training programs for its officers and employees on securities laws and accounting principles; institute new pre-opinion review controls; revise its audit policies and procedures; and appoint an independent monitor to ensure these measures are implemented.

"PW India violated its most fundamental duty as a public watchdog by failing to comply with some of the most elementary auditing standards and procedures in conducting the Sataym audits. The result of this failure was very harmful to Satyam shareholders, employees and vendors," said Robert Khuzami, Director of the SEC's Division of Enforcement. Cheryl Scarboro, Chief of the SEC's Foreign Corrupt Practices Act Unit, added, "PW India failed to conduct even the most fundamental audit procedures."

After the fraud at Satyam came to light, PW India replaced virtually all senior management responsible for audit matters. The affiliates suspended its Satyam audit engagement partners from all work and removed from client service all senior audit professionals on the former Satyam audit team.

In addition to the $6 million penalty and previously listed reforms, the PW India affiliates have consented to a censure, as well as the entry of a cease-and-desist order finding that they violated Section 10A(a) of the Exchange Act and were a cause of Satyam's violations of Sections 13(a) and 13(b)(2)(A) of the Exchange Act and relevant Rules thereunder.

In a related proceeding, the PW India affiliates also reached a settlement with the Public Company Accounting Oversight Board (PCAOB) in which the PW India firms have been censured and agreed to extensive undertakings substantially similar to those set forth in the SEC administrative order. Additionally, Lovelock & Lewes and Price Waterhouse Bangalore have agreed to pay the PCAOB a $1.5 million penalty for their violations of PCAOB rules and standards in relation to the Satyam audit engagement.

The SEC's investigation is continuing.

You can read SEC Release No. 64184 Order Against PW India Affiliates here.

Related: SEC charges Satyam Computer Services with Financial Fraud