Price Waterhouse auditors arrested

Charged with cheating and conspiracy in the Satyam saga.

The Andhra Pradesh police today arrested two Price Waterhouse auditors, S Gopalakrishnan and Srinivas Talluri, under Sections 120B (conspiracy) and 420 (cheating) in connection with the Satyam Computer Services financial fraud case. The two, who were Satyam’s external auditors, were picked up last night for questioning but have not yet been produced in court.

Gopalakrishnan is Price Waterhouse’s chief relationship partner and Talluri its engagement leader. Gopalakrishnan was one of the auditors who signed the tainted Global Trust Bank balance sheet. The case remains under investigation by the disciplinary committee of Institute of Chartered Accountants of India, or ICAI, which regulates the profession in the country.

ICAI said it had not yet received any information about the arrests from the Andhra Pradesh police. Ved Jain, its president, said the body would decide the course of action after discussing the issue with its 40 council members.

One of those 40 is Gopalakrishnan, who has been an ICAI council member for 11 years. This is the first time in the history of ICAI that a council member has been arrested. Jain added that ICAI would talk to the Andhra police to seek information on how its two members were involved in the Satyam fraud.

Price Waterhouse said it shared the regulators’ concern in understanding the full extent of the fraud and how it was accomplished. “We greatly regret that two Price Waterhouse partners have been detained today for further questioning. We do not know the basis for them being detained,” it said in a statement.

The firm has been facing the heat since Satyam founder Ramalinga Raju’s admission that the company’s accounts were inflated and fictitious.

Talluri, who signed the last Satyam audit report on behalf of Price Waterhouse, said the consolidated financial statements gave a “true and fair view in conformity with the accounting principles generally accepted in India”. After Raju’s confession, though, the audit firm said its opinions on the financial statements “may be rendered inaccurate and unreliable”.

ICAI does not have the power to prosecute “guilty” members, since Article 20 of the Constitution, also called double jeopardy, prevents it from punishing a person for the same crime under two laws. “We will wait till the end of the trial. If the members get an imprisonment of more than six months, their memberships to ICAI automatically stand cancelled,” said Jain.

Reacting to the arrests, Shailesh Haribhakti, managing partner of chartered accountancy firm Haribhakti & Co, said: “I am very shocked. I have never seen such a development in my entire career of 32 years. The Satyam development is a completely new experience.”

On January 13, the police visited the Price Waterhouse office in Hyderabad, looking for information connected to the Satyam case.

On January 22, the police arrested Gopalakrishna Raju, general manger of SRSR Holdings, which is owned by Ramalinga Raju’s brother, Suryanarayana Raju . The police are also said to have picked up five others: Narasimha Raju, Ramakrishna, Bhaskara Raju and his son I V Krishnam Raju, and Anand.

Sebi to move HC

Securities and Exchange Board of India (Sebi) will file an application with the Andhra Pradesh High Court seeking permission to question Satyam Computer Services founder B Ramalinga Raju, his brother B Rama Raju and former chief financial officer Srinivas Vadlamani.

Sebi counsel Pradyumna Kumar Reddy said the investigation was being hampered as Sebi was yet to record the statements of the trio.

The metropolitan magistrate yesterday rejected the application citing non-maintainable grounds and jurisdiction reasons. The lower court's rejection implied that a third party investigating agency would not be allowed to question the accused during the judicial custody, which has been extended till January 31.