Satyam seals $125-mn class action deal
IT services firm Mahindra Satyam announced today that it had reached a landmark out-of-court settlement with US shareholders involving a payment of $125 million (Rs 560 crore) in claims arising from the accounting fraud in Satyam Computer Services — its previous avatar. Vivek Sinha reports.business Updated: Feb 17, 2011 22:05 IST
IT services firm Mahindra Satyam announced on Thursday that it had reached a landmark out-of-court settlement with US shareholders involving a payment of $125 million (Rs 560 crore) in claims arising from the accounting fraud in Satyam Computer Services — its previous avatar.
The settlement in this class action suit — involvinv compensation for those hit by the fraud — removes shreds of uncertainty and smoothens the way for an expected merger of Satyam Computer Services with Tech Mahindra to create Mahindra Satyam.
“There was a huge cloud of uncertainty over the quantum of compensation which the Satyam Computer Services might be asked to cough up. It was not known whether the company would be required to pay a million or a billion dollars.
This uncertainty is over now,” said Vineet Nayyar, chairman of Mahindra Satyam.
The class action suit is the result of cases filed by US shareholders in response to the estimated R8,000-crore accounting fraud admitted by Ramalinga Raju, founder-chairman of Satyam Computer Services.
PwC were the auditors for Satyam Computer Services when its accounting fraud happened Nayyar added that the company was also mulling legal action against auditing firm PricewaterhouseCoopers (PwC) and Ramalinga Raju and his associates.
He refused to give any time frame for these lawsuits. Raju had shocked investors when in January 2009 he announced that Satyam had in fact overstated earnings and assets for several years.
After Raju’s confession shares of Satyam, which was then listed on the New York Stock Exchange apart from Indian bourses, went for a free fall leading to the lawsuit.
Under stock exchange laws, lying or misleading shareholders is an offence.
Satyam was later bought over by Tech Mahindra—the IT arm of Mahindra Group. The latest settlement ends claims that Satyam misled investors and also stops them from suing the company in the future.
“We worked with clients and plaintiffs outside the courts and came to the settlement amounts which will now go to the federal court in New York for approval,” said Nayyar.
He said the out-of-court agreement would first get a preliminary approval from the judge, and subsequently within a few months it be made into a final approval.
On PwC, Nayyar said: “If we get any compensation from the PwC we would hand over 25% of the funds to the clients of the current class action suit while 75% would remain with the company,” he said.