Indian police on Friday arrested B. Ramalinga Raju, the founder and former chairman of beleaguered outsourcing giant Satyam Computer, days after he admitted he doctored the company’s accounts to the tune of US$1 billion.
Satyam’s balance sheets were riddled with “fictitious” assets and “nonexistent” cash that could no longer be concealed after a deal intended to save the struggling company was abandoned, Raju said on Wednesday in a letter to the company’s board.
Raju and his brother, former managing director B. Rama Raju, were arrested in the southern city of Hyderabad, said S.S. Yadav, the top police official of Andhra Pradesh state where the company is headquartered. Hyderabad is the capital of Andhra Pradesh.
The brothers resigned their posts in the company on Wednesday.
Yadav said the men were being investigated for cheating, forgery, criminal breach of trust and falsifying documents. They may face up to 10 years in prison, he said.
Several investors in Satyam were considering suing PricewaterhouseCoopers LLC, the auditor of the company’s doctored accounts, an attorney said on Friday.
Satyam shares fell another 45.5 percent on Friday to 21.75 rupees in Mumbai, following an 80 percent plunge on Wednesday.
Trading was closed on Thursday because of a holiday.
“PricewaterhouseCoopers would be responsible in certain circumstances. I mean they are supposed to check on the accounts and their audit report is relied upon by various people,” said Ravi Nath, a lawyer with the Rajinder Narain law firm, which has been contacted by several investors intending to sue the auditor. “On my first impression, PricewaterhouseCoopers needs to answer a few things.”
The auditing firm said in the statement that they had worked “in accordance with applicable auditing standards and were supported by appropriate audit evidence.”
“Given our obligations for client confidentiality, it is not possible for us to comment upon the alleged irregularities. Price Waterhouse will fully meet its obligations to cooperate with the regulators and others,” the statement said.
The international accounting firm, PricewaterhouseCoopers International Ltd, is based in London.
Beginning tomorrow, the Bombay Stock Exchange will replace Satyam with Sun Pharmaceuticals Ltd on India’s benchmark SENSEX stock index.
Top Satyam executives have struggled to reassure investors, employees and clients since news of the scandal broke.
Satyam Computer Services Ltd employs 53,000 people — among the 2 million Indians working in the country’s booming high-tech industry, which last year brought in an estimated US$40 billion. Satyam’s clients include a slew of Fortune 500 companies including Nestle, General Electric and Ford Motors.
Ram Mynampati, the company’s interim head, said the company’s top executives relied on audited accounts and were “shocked” by Raju’s admissions.
The company’s chief financial officer V. Srinivas resigned on Thursday.
Meanwhile, Archana Uttapa, a company spokeswoman, denied Indian media reports that Satyam was considering firing 10,000 of its 53,000 employees.
“There is no such move,” she said.
Employee salaries have been paid through last month and cleared for this month as well, she said.
The scandal comes at a delicate time for India’s information technology companies, which are struggling against a global slowdown and waning economic growth at home.
India’s IT firms derive 40 percent of their global revenues from financial services clients.
Andhra Pradesh’s chief minister wrote on Thursday to Indian Prime Minister Manmohan Singh asking him to appoint a management team that could restore confidence in the company and help protect its employees and investors.
Holders of the company’s US-listed shares — which have been halted from trading on the New York Stock Exchange while regulators investigate — have filed two class action suits against Satyam, the law firms representing the investors said in separate statements.
The suits filed by Vianale & Vianale LLP and Izard Noble LLP allege Satyam and its top executives issued false and misleading financial statements and violated federal securities laws, the statements on their Web sites said.
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