James Hamblin, et al. v. Satyam Computer Services Ltd., et...

UNITED STATES DISTRICT COURTSOUTHERN DISTRICT OF NEW YORK

JAMES HAMBLIN, on behalf of himself and allothers similarly situated,

Plaintiff,

V.

SATYAM COMPUTER SERVICES L T D . ,B. RAMALINGA RAJU, B. RAMA RAJU,SRINIVAS VADLAMANI,PRICEWATERHOUSE COOPERSINTERNATIONAL LIMITED,PRICEWATERHOUSE COOPERS PVT LTD.,and PRICE WATERHOUSE,

Defendants

Civil Action No.

CLASS ACTION COMPLAINT

\VjJURY 1AL DEMANDED I.AN=f3 O'

®S.I . , sewN.Y.

Plaintiff James Hamblin, ("Plaintiff'), individually and on behalf of all other persons

similarly situated, by his undersigned attorneys, for his Class Action Complaint against

defendants, alleges upon personal knowledge as to himself and his own acts, and upon

information and belief as to all other matters, based on, inter alia, the investigation conducted by

and through his attorneys, which included, among other things, a review of the defendants'

public documents; conference calls and announcements made by defendants; Securities and

Exchange Commission ("SEC") filings, wire and press releases published by and regarding

Satyam Computer Services Ltd. ("Satyam" or the "Company"); securities analysts' reports and

advisories about the Company; and information readily obtainable on the Internet.

NATURE OF THE ACTION

1. This is a securities fraud class action alleging violations of Sections 10(b) and

20(a) of the Securities Exchange Act of 1934 (the "Exchange Act") and Rule 1Ob-5 against

Satyam, certain of its top officials, and its outside auditor, and is brought on behalf of all persons

who purchased or otherwise acquired American Depository Receipts ("ADRs") of Satyam from

January 6, 2004 through January 6, 2009, inclusive (the "Class Period")

2. __Dkesidant B. Ramalinga Raju, Satyam's founder and Chairman, who resigned

on January 7, 2009 and since then has been arrested, has admitted that for many years he cooked

Satyam's books and reported inflated revenues, profits and assets for the Company. He has also

implicated his brother, defendant B. Rama Raju, the Company's Managing Director and CEO,

who has resigned from the Company and has been arrested. Defendant Srinivas Vadlamani,

Satyam's CFO has resigned and has been arrested as well.

3. The egregiousness of the fraud is evident by B. Ramalinga Raju's admission

that he concocted $1 billion in cash assets for the Company. He acknowledged that the

fraudulent scheme "simply reached unmanageable proportions," which he likened to "riding a

tiger, not knowing how to get off without being eaten."

4. The materially misleading statements that defendants issued about the Company

inflated the price of the Company's ADRs, which are listed on the New York Stock Exchange

("NYSE")

5. Upon disclosure of the fraud, trading in the Company's ADRs was halted from

January 7, 2009 through January 9, 2009. On premarket activity, the ADRs dropped almost 90%

in value. Trading resumed on January 12, 2009. The shares of Satyam on the Mumbai Stock

Exchange have plunged to almost zero. Thus, Plaintiff and other investors, who purchased

Satyam ADRs at prices that were inflated by the misleading statements issued by the defendants

during the Class Period, were damaged.

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JURISDICTION AND VENUE

6. The claims asserted herein arise under and pursuant to Sections 10(b) and 20(a)

of the Exchange Act, 15 U.S.C. §§ 78j(b) and 78t(a), and Rule 10b - 5 promulgated thereunder by

the SEC, 17 C.F.R. § 240.1Ob-5.

7. This Court has jurisdiction over the subject matter of this action pursuant to 28

U.S.C. §§ 1331 and 1337 and Section 27 of the Exchange Act, 15 U.S.C. § 78aa.

8. Venue is proper in this District pursuant to Section 27 of the Exchange Act, and

28 U.S.C. § 1391(b). Satyam conducts business in this District and substantial acts in

furtherance of the alleged fraud and/or its effects occurred within this District. Satyam ADRs are

listed on the NYSE. Price Waterhouse issued Independent Auditors' Reports with respect to

Satyam's financial statements with full knowledge that they would be incorporated into Satyam's

filings with the U.S. Securities and Exchange Commission for the purpose of inducing investors

to purchase Satyam ADRs on the NYSE. Pricewaterhouse Coopers International Limited

conducts substantial business in this District through its member offices, located in New York,

over which it has supervision and control.

9. In connection with the challenged conduct, defendants, directly or indirectly,

used the means and instrumentalities of interstate commerce, including, but not limited to, the

United States mails, interstate telephone communications and the facilities of the national

securities markets.

PARTIES

10. Plaintiff purchased Satyam ADRs during the Class Period, as set forth in the

accompanying certification which is incorporated herein by reference, and was damaged thereby.

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11. Defendant Satyam was organized as a limited liability company under the laws

of the Republic of India pursuant to the provisions of the Indian Companies Act on June 24,

1987. Satyam, which means "truth" in Sanskrit, serves as a back office for one-third of the

Fortune 500 companies and is one of India's largest out-sourcing companies. A significant

majority of its revenues is derived from the United States.

12. The Company's agent for service in the United States is CT Corporation

System, 111 8th Avenue , New York, New York 10011.

13. PricewaterhouseCoopers Pvt. Ltd. is a member firm of PricewaterhouseCoopers

International Limited, with offices in India. Price Waterhouse is the auditing arm of

PricewaterhouseCooper Pvt. Ltd., and performed auditing services for Satyam during the Class

Period . PricewaterhouseCoopers Pvt. Ltd. and Price Waterhouse are referred to herein as

"PwC". PwC issued materially false and misleading Independent Auditors ' Reports that falsely

certified Satyam's financial statements as being presented fairly in all material respects and in

accordance with Generally Accepted Accounting Principles ("GAAP"). The false and

misleading Independent Auditors' Reports issued out of PwC's offices in Hyderabad and

Secunderabad, India.

14. Defendant PricewaterhouseCoopers International Limited ("PwC-IL") is a

U.K.-based multinational auditing, accounting, and consulting firm. PricewaterhouseCoopers

was formed on July 1, 1998, upon the merger of Price Waterhouse and Coopers and Lybrand.

PwC-IL's member firms provide auditing services worldwide, including in India through PwC,

where it conducted the audits for Satyam. PwC-IL engages in worldwide conduct and

collectively pays for common marketing and advertising and other activities to promote the

firm's services and common name "PricewaterhouseCoopers," including the maintenance of a

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single Internet website, www.pwc.com . Its website portrays PwC-IL to the public as a "global

organization ," and describes its top executive , Samuel A. DiPiazza, as the "Global CEO of

PricewaterhouseCoopers." PwC-IL is also responsible for development and work for the

consistent application of common risk and quality standards by member firms, including

compliance with independence processes.

15. Defendant B. Ramalinga Raju ("B. Raju") served as the Company's Chairman

until his resignation on January 7, 2009. He is under arrest in India for his participation in the

alleged fraud.

16. Defendant B. Rama Raju ("Rama Raju") served as the Company's Managing

Director and CEO until his resignation on January 7, 2009. He is under arrest in India for his

participation in the alleged fraud.

17. Defendant Srinivas Vadlamani ("Srinivas V.") was Satyam's CFO at all

relevant times . After the January 7, 2009 disclosure of the fraud , he resigned from the Company.

He is under arrest in India for his participation in the alleged fraud.

18. Defendants B. Raju, Rama Raju and Srinivas V. are sometimes referred to as

the "Individual Defendants."

SUBSTANTIVE ALLEGATIONS

Background

19. On May 15, 2001, Satyam ADRs were listed on the NYSE.

The False and Misleading Statements

20. Throughout the Class Period, defendants issued materially false and misleading

statements about the Company's financial results, condition, operations and future prospects.

Among other things, defendants reported inflated profits, revenues and cash assets for the

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Company. PwC issued false and misleading audit opinions which falsely stated that the

Company's financial statements "present[ed] fairly, in all material respects, the financial position

of Satyam Computer Services Limited; that the Company had effective internal controls in place,

and that PwC had conducted its audits in accordance with the Public Company Accounting

Oversight Board (United States)." The challenged false and misleading statements are listed

below. On October 23, 2003, the Company announced its financial results for its second quarter

ended September 30, 2003, reporting total revenue of Rs.598.49 crore ($130 million).

21. On October 30, 2003, the Company filed a Form 6-K with the SEC, reporting

net income of $29 million or $0.09 per diluted share for this second quarter, as well as assets of

$611 million and liabilities of $96 million.

22. On January 22, 2004, the Company announced its financial results for its third

quarter ended December 31, 2003, reporting total revenue of Rs.662.70 crore ($145.65 million).

23. On January 29, 2004, the Company filed a Form 6-K with the SEC, reporting

net income of $29 million or $0.09 per diluted share for this third quarter, as well as assets of


24. On April 22, 2004, the Company announced its financial results for its fourth

quarter and fiscal year ended March 31, 2004. For the fourth quarter, the Company reported net

revenue of Rs.725.70 crore ($159.27 million) and net income of $29.7 million , or $0.09 per

diluted share. For the fiscal year, the Company reported revenue of Rs.2,541.55 crore ($553.11

million) and net income of $111.8 million or $0.35 per diluted share.

25. On June 29, 2004, the Company filed its annual report for the fiscal year ended

March 31, 2004 with the SEC on Form 20-F. The Form 20-F reiterated the previously

announced financial results and was signed by defendants Rama Raju and Srinivas V. In

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addition , pursuant to the Sarbanes-Oxley Act of 2002 ("SOX"), the Form 20-F contained signed

certifications by defendants Rama Raju and Srinivas V., stating that the Form 20-F did not

contain any material misrepresentations . The Form 20-F also reported total assets of $713.7

million and total liabilities of $69.8 million for the fiscal year.

26. The Form 20-F included PwC's Independent Auditors' Report, which stated in

relevant part:

Report of Independent Auditors

To the Board of Directors of: Satyam Computer Services Limited

In our opinion, based upon our audits and the report of other independent auditors', theaccompanying consolidated balance sheets, the related consolidated statements of operations, ofcash flows and of shareholders' equity and comprehensive income after the restatement asdiscussed in Note 22, present fairly, in all material respects, the financial position of SatyamComputer Services Limited and its subsidiaries as at March 31, 2004, 2003 and 2002, and theresults of their operations and their cash flows for each of the three years in the period endedMarch 31, 2004, in conformity with accounting principles generally accepted in the UnitedStates of America.

****

We conducted our audits of these statements in accordance with the standards of the PublicCompany Accounting Oversight Board (United States). Those standards require that we plan andperform the audit to obtain reasonable assurance about whether the financial statements are freeof material misstatement.

Price WaterhouseSecunderabad, IndiaApril 22, 2004

27. On July 22, 2004, the Company announced its financial results for its first

quarter ended June 30, 2004 , reporting total revenue of Rs.771. 50 crore ($ 175 million).

28. On July 30, 2004, the Company filed a Form 6-K with the SEC reporting net

income of $36.4 million, or $0.11 per diluted share for this first quarter, and assets of $740

million and liabilities of $82 million.

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29. On October 20, 2004, the Company announced its financial results for its

second quarter ended September 30, 2004, reporting revenues of Rs.848.10 crore ($189 million).


net income of $37 million, or $0.11 per diluted share for this second quarter, as well as assets of



quarter ended December 31, 2004, reporting revenue of Rs.891.26 crore ($205 million).


net income of $34 million , or $0.11 per diluted share for this third quarter , as well as assets of



quarter and fiscal year ended March 31, 2005. For this quarter, the Company reported net

revenue of Rs.953.37 crore ($225 million) and net income of $45.7 million, or $0.14 per diluted

share. For the fiscal year, the Company reported revenue of Rs.3,521 crore ($793.6 million) and

net income of $53.76 million or $0.48 per diluted share.

34. On April 28, 2005, the Company filed its annual report for the fiscal year ended



addition, pursuant to SOX, the Form 20-F contained signed certifications by defendants Rama

Raju and Srinivas V., stating that the Form 20-F did not contain any material misrepresentations.

The Form 20-F also reported total assets of $884 million and total liabilities of $96 million for

the fiscal year.

35. The Form 20-F included PwC's Independent Auditors' Report, which stated:

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Shareholders of Satyam Computer Services Limited:

In our opinion, the accompanying consolidated balance sheets and the relatedconsolidated statements of income, of shareholders equity and comprehensive income and ofcash flows present fairly, in all material respects, the financial position of Satyam ComputerServices Limited and its subsidiaries at March 31, 2005 and 2004, and the results of theiroperations and their cash flows for each of the years in the three year period ended March 31,2005 in conformity with accounting principles generally accepted in the United States ofAmerica. In addition, in our opinion, the financial statement schedule listed in the accompanyingindex presents fairly, in all material respects, the information set forth therein when read inconjunction with the related consolidated financial statements. These financial statements andfinancial statement schedule are the responsibility of the Company's management. Ourresponsibility is to express an opinion on these financial statements and financial statementschedule based on our audits. We conducted our audits of these statements in accordance withthe standards of the Public Company Accounting Oversight Board (United States). Thosestandards require that we plan and perform the audit to obtain reasonable assurance aboutwhether the financial statements are free of material misstatement. An audit includes examining,on a test basis, evidence supporting the amounts and disclosures in the financial statements,assessing the accounting principles used and significant estimates made by management, andevaluating the overall financial statement presentation. We believe that our audits provide areasonable basis for our opinion.



quarter ended June 30, 2005, reporting total revenue of Rs.1,058.71 crore ($246 million).

37. On July 27, 2005, the Company filed a Form 6-K with the SEC, reporting a net

income of $42 million, or $0.13 per diluted share for this first quarter, as well as assets of $960

million and liabilities of $118 million.


second quarter ended September 30, 2005, reporting revenue of Rs.1,154.97 crore ($268

million).


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net income of $51.6 million, or $0.16 per diluted share for this second quarter, as well as assets

of $1 billion and liabilities of $141 million.


quarter ended December 31, 2005, reporting total revenue of Rs.1,265.29 crore ($281 million).


net income of $93 million, or $0.17 per diluted share for this third quarter, as well as assets of $1

billion and liabilities of $158 million.


quarter and fiscal year ended March 31, 2006. For the fourth quarter, the Company reported net

revenue of Rs.1,314 crore ($300.7 million) and net income of $62.3 million, or $0.19 per diluted

share. For the fiscal year, the Company reported revenue of Rs.4,793 crore ($1.0 billion) and net

income of $249.4 million or $0.64 per diluted share.






The Form 20-F also reported total assets of $1.2 billion and total liabilities of $165.9 million for

the fiscal year.

44. The Form 20-F included PwC's Independent Auditors' Report, which stated as

follows:

Report of Independent Registered Public Accounting Firm


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In our opinion, the accompanying consolidated balance sheets and the relatedconsolidated statements of income, of shareholders equity and comprehensive income and ofcash flows present fairly, in all material respects, the financial position of Satyam ComputerServices Limited and its subsidiaries at March 31, 2006 and 2005, and the results of theiroperations and their cash flows for each of the years in the three year period ended March 31,2006 in conformity with accounting principles generally accepted in the United States ofAmerica. In addition, in our opinion, the financial statement schedule listed in the accompanyingindex presents fairly, in all material respects, the information set forth therein when read inconjunction with the related consolidated financial statements. These financial statements andfinancial statement schedule are the responsibility of the Company's management. Ourresponsibility is to express an opinion on these financial statements and financial statementschedule based on our audits. We conducted our audits of these statements in accordance withthe standards of the Public Company Accounting Oversight Board (United States). Thosestandards require that we plan and perform the audit to obtain reasonable assurance aboutwhether the financial statements are free of material misstatement. An audit includes examining,on a test basis, evidence supporting the amounts and disclosures in the financial statements,assessing the accounting principles used and significant estimates made by management, andevaluating the overall financial statement presentation. We believe that our audits provide areasonable basis for our opinion.



quarter ended June 30, 2006, reporting total revenue of Rs. 1,443 crore ($322.5 million).

46. On July 28, 2006, the Company filed a Form 6-K with the SEC, reporting net

income of $75.5 million, or $0.22 per diluted share for this first quarter, as well as assets of $1.2



second quarter ended September 30, 2006, reporting total revenue of Rs.1,601.88 crore ($352

million).


net income of $65.5 million , or $0.10 per diluted share for this second quarter , as well as assets

of $1.3 billion and liabilities of $223 million.

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quarter ended December 31, 2006, reporting total revenue of Rs. 1,661.12 crore ($375.6 million).


net income of $71 million, or $0.11 per diluted share for this third quarter, as well as assets of

$1.4 billion and liabilities of $236 million.


quarter and fiscal year ended March 31, 2007. For the quarter, the Company reported net revenue

of Rs.1,779 crore ($411 million) and net income of $86 million, or $0.26 per diluted share. For

the fiscal year, the Company reported revenue of Rs.6,485 crore ($1.46 billion) and net income

of $298 million or $0.64 per diluted share.







the fiscal year.


relevant part:



We have completed an integrated audit of Satyam Computer Services Limited'sMarch 31, 2007 consolidated financial statements and of its internal control over financialreporting as of March 31, 2007 and audits of its March 31, 2006 and March 31, 2005consolidated financial statements in accordance with the standards of the Public Company

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Accounting Oversight Board (United States). Our opinions, based on our audits, arepresented below.

Consolidated financial statements and financial statement schedule

In our opinion, the consolidated financial statements listed in the accompanying indexpresent fairly, in all material respects, the financial position of Satyam Computer ServicesLimited and its subsidiaries at March 31, 2007 and 2006, and the results of their operationsand their cash flows for each of the three years in the period ended March 31, 2007 inconformity with accounting principles generally accepted in the United States of America. Inaddition, in our opinion, the financial statement schedule listed in the accompanying indexpresents fairly, in all material respects, the information set forth therein when read inconjunction with the related consolidated financial statements. These financial statementsand financial statement schedule are the responsibility of the Company's management. Ourresponsibility is to express an opinion on these financial statements and financial statementschedule based on our audits. We conducted our audits of these statements in accordancewith the standards of the Public Company Accounting Oversight Board (United States).Those standards require that we plan and perform the audit to obtain reasonable assuranceabout whether the financial statements are free of material misstatement. An audit offinancial statements includes examining, on a test basis, evidence supporting the amountsand disclosures in the financial statements, assessing the accounting principles used andsignificant estimates made by management, and evaluating the overall financial statementpresentation. We believe that our audits provide a reasonable basis for our opinion.

****

Internal control over financial reporting

Also, in our opinion, management's assessment, included in Management's Report onInternal Control Over Financial Reporting appearing under Item 15, that the Companymaintained effective internal control over financial reporting as of March 31, 2007 based oncriteria established in Internal Control - Integrated Framework issued by the Committee ofSponsoring Organizations of the Treadway Commission (COSO), is fairly stated, in allmaterial respects, based on those criteria. Furthermore, in our opinion, the Companymaintained, in all material respects, effective internal control over financial reporting as ofMarch 31, 2007, based on criteria established in Internal Control - Integrated Frameworkissued by the COSO. The Company's management is responsible for maintaining effectiveinternal control over financial reporting and for its assessment of the effectiveness of internalcontrol over financial reporting. Our responsibility is to express opinions on management'sassessment and on the effectiveness of the Company's internal control over financialreporting based on our audit. We conducted our audit of internal control over financialreporting in accordance with the standards of the Public Company Accounting OversightBoard (United States). Those standards require that we plan and perform the audit to obtainreasonable assurance about whether effective internal control over financial reporting wasmaintained in all material respects. An audit of internal control over financial reportingincludes obtaining an understanding of internal control over financial reporting, evaluating

13

management's, assessment, testing and evaluating the design and operating effectiveness ofinternal control, and performing such other procedures as we consider necessary in thecircumstances. We believe that our audit provides a reasonable basis for our opinions.

/s/ Price WaterhouseSecunderabad, IndiaApril 27, 2007


quarter ended June 30, 2007, reporting total revenue of Rs.1,830 crore ($452.3 million).


income of $93 million, or $0.27 per diluted share for this first quarter, as well as assets of $1.8



second quarter ended September 30, 2007, reporting total revenue of Rs.2,031.7 crore ($509.6

million).


net income of $102 million, or $0.30 per diluted share for this second quarter, as well as assets of

$ 1.984 billion and liabilities of $333 million.


quarter ended December 31, 2007, reporting total revenue of Rs.2,195.56 crore ($562.9 million).


net income of $109.7 million, or $0.32 per diluted share, as well as assets of $2.1 billion and

liabilities of $345 million.


quarter and fiscal year ended March 31, 2008. For the quarter, the Company reported net revenue

of Rs.2,416 crore ($613 million) and net income of $112 million, or $0.34 per diluted share. For

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the fiscal year, the Company reported revenue of Rs.8,473 crore ($2.138 billion) and net income

of $417 million or $1.25 per diluted share.

61. On July 18, 2008 , the Company announced its financial results for its first

quarter ended June 30, 2008. For the quarter, the Company reported total revenue of Rs.2,620.80

crore ($637.3 million).


income of $126.6 million, or $0.37 per diluted share for this first quarter, as well as assets of

$2.3 billion and liabilities of $491 million.

63. On August 8, 2008, the Company filed its annual report for the fiscal year ended






the fiscal year.


relevant part:



In our opinion, the consolidated financial statements listed in the index appearingunder Item 18 present fairly, in all material respects, the financial position of SatyamComputer Services Limited and its subsidiaries at March 31, 2008 and 2007, and the resultsof their operations and their cash flows for each of the three years in the period ended March31, 2008 in conformity with accounting principles generally accepted in the United States ofAmerica. In addition, in our opinion, the financial statement schedule listed in the indexappearing under Item 18 presents fairly, in all material respects, the information set forththerein when read in conjunction with the related consolidated financial statements. Also in

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our opinion, the Company maintained, in all material respects, effective internal control overfinancial reporting as of March 31, 2008, based on criteria established in Internal Control -Integrated Framework issued by the Committee of Sponsoring Organizations of theTreadway Commission (COSO). The Company's management is responsible for thesefinancial statements and financial statement schedule, for maintaining effective internalcontrol over financial reporting and for its assessment of the effectiveness of internal controlover financial reporting, included in Management's Report on Internal Control OverFinancial Reporting appearing under Item 15. Our responsibility is to express opinions onthese financial statements, on the financial statement schedule, and on the Company'sinternal control over financial reporting based on our audits (which were integrated audits in2008 and 2007). We conducted our audits in accordance with the standards of the PublicCompany Accounting Oversight Board (United States). Those standards require that we planand perform the audits to obtain reasonable assurance about whether the financial statementsare free of material misstatement and whether effective internal control over financialreporting was maintained in all material respects. Our audits of the financial statementsincluded examining, on a test basis, evidence supporting the amounts and disclosures in thefinancial statements, assessing the accounting principles used and significant estimates madeby management, and evaluating the overall financial statement presentation. Our audit ofinternal control over financial reporting included obtaining an understanding of internalcontrol over financial reporting, assessing the risk that a material weakness exists, andtesting and evaluating the design and operating effectiveness of internal control based on theassessed risk. Our audits also included performing such other procedures as we considerednecessary in the circumstances. We believe that our audits provide a reasonable basis for ouropinions.

/s/ Price WaterhouseHyderabad, IndiaAugust 08, 2008


second quarter ended September 30, 2008, reporting total revenue of Rs.2,819.29 crore ($652.2

million).


net income of $132.3 million , or $0.39 per diluted share for this second quarter, as well as assets

of $2.353 billion and liabilities of $586.5 million.

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The Truth Emerges

67. On December 23, 2008, the World Bank confirmed that it had declared Satyam

ineligible to receive direct contracts under its corporate procurement program "for providing

improper benefits to Bank staff and for failing to maintain documentation to support fees charged

for its subcontractors." The price of Satyam's ADRs fell on this news.

68. On December 29, 2008, Satyam announced in two press releases the

resignations of four directors from its Board. The resignations related to the Board's initial

approval of acquisitions of Raju family-owned enterprises. More specifically, two weeks prior,

on December 15, 2008, Satyam announced that it was acquiring for $1.6 billion two companies

founded and partly owned by the Raju family - a 100% stake in Maytas Properties Limited and a

51 % stake in Maytas Infra Limited. Twelve hours later, on December 16, Satyam announced the

cancellation of the proposed acquisitions "in light of the feedback received from the investor

community ." After the resignations , the Company had only five directors on its Board.

69. On January 7, 2009 , prior to opening of trade on the NYSE, the massive fraud at

Satyam was revealed. On that date, defendant B. Raju sent a letter to the Satyam Board and

Securities & Exchange Board of India acknowledging a multi-year fraud in which Satyam's

financial accounts and disclosures were systematically falsified, with its revenues, profits, and

cash balance overstated and its liability understated. B. Raju admitted that he had created a

fictitious cash balance of $1 billion for the Company, and provided numerous other examples of

his cooking of Satyam's books.

70. According to B. Raju: "What started as a marginal gap between actual

operating profit and the one reflected in the books of accounts continued to grow over the years.

It has attained unmanageable proportions as the size of company operations grew. . . ." He

17

further stated : "It was like riding a tiger , not knowing how to get off without being eaten."

71. B. Raju claims that he tried to prevent the unraveling of the fraud by efforts

such as the December 2008 attempt to buy two construction firms in which his sons held stakes.

72. Below are relevant excerpts from the text of B. Raju's letter which was filed by

the Company on Form 6-K on January 7, 2009:

Dear Board Members,

It is with deep regret, and tremendous burden that I am carrying on myconscience, that I would like to bring the following facts to your notice:

The Balance Sheet carries as of September 30, 2008

a. Inflated (non-existent) cash and bank balances of Rs. 5,040crore [$1.04 billion] (as against Rs. 5361 crore reflected in thebooks)

b. An accrued interest of Rs. 376 crore which is non-existent

c. An understated liability of Rs. 1,230 crore on account offunds arranged by me

d. An over stated debtors position of Rs. 490 crore (as againstRs. 2651 reflected in the books)

2. For the September quarter (Q2) we reported a revenue of Rs. 2,700crore and an operating margin of Rs. 649 crore (24% of revenues) asagainst the actual revenues of Rs. 2,112 crore and an actual operatingmargin of Rs. 61 crore (3% of revenues). This has resulted in artificialcash and bank balances going up by Rs. 588 crore in Q2 alone.

The gap in the Balance Sheet has arisen purely on account of inflatedprofits over a period of last several years (limited only to Satyamstandalone, books of subsidiaries reflecting true performance). Whatstarted as a marginal gap between actual operating profit and the onereflected in the books of accounts continued to grow over the years. It hasattained unmanageable proportions as the size of company operationsgrew significantly (annualized revenue run rate of Rs. 11,276 crore in theSeptember quarter, 2008 and official reserves of Rs. 8,392 crore). Thedifferential in the real profits and the one reflected in the books wasfurther accentuated by the fact that the company had to carry additionalresources and assets to justify higher level of operations - therebysignificantly increasing the costs.

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Every attempt made to eliminate the gap failed. As the promoters held a smallpercentage of equity, the concern was that poor performance would result in atake-over, thereby exposing the gap. It was like riding a tiger, not knowing how toget off without being eaten.

The aborted Maytas acquisition deal was the last attempt to fill the fictitiousassets with real ones. Maytas' investors were convinced that this is a gooddivestment opportunity and a strategic fit. Once Satyam's problem was solved, itwas hoped that Maytas' payments can be delayed. But that was not to be. Whatfollowed in the last several days is common knowledge.

[I]n the last two years a net amount of Rs. 1,230 crore was arranged toSatyam (not reflected in the books of Satyam) to keep the operations going byrestoring to pledging all the promoter shares and raising funds from knownsources by giving all kinds of assurances (Statement enclosed, only to themembers of the board). Significant dividend payments, acquisitions, capitalexpenditure to provide for growth did not help matters. Every attempt was madeto keep the wheel moving and to ensure prompt payment of salaries to theassociates. The last straw was the selling of most of the pledged share by thelenders on account of margin triggers.

Under the circumstances, I am tendering my resignation as the chairman ofSatyam and shall continue in this position only till such time the current board isexpanded. My continuance is just to ensure enhancement of the board over thenext several days or as early as possible.

I am now prepared to subject myself to the laws of the land and faceconsequences thereof.

(B. Ramalinga Raju)

Copies marked to:1. Chairman SEBI2. Stock Exchanges

73. On January 7, 2009, Rama Raju resigned from Satyam. The Company

announced that Ram Myanpati, President and a director of Satyam, would become interim CEO

pending ratification by the Board.

74. On January 7, 2009, DSP Merrill Lynch Limited, which had been previously

19

retained by Satyam to assist in a review of its strategic options, terminated its engagement with

Satyam. According to Merrill Lynch, the termination was prompted by the disclosure of

"material accounting irregularities."

75. As a result of these revelations, trading in Satyam's ADRs was halted from

January 7, 2009 through January 9, 2009. However, on pre-market activity on January 7, 2009,

the ADRs plunged almost 90% in value. When trading resumed on January 12, 2009, the value

of the ADRs dropped 85%.

76. So dire are the Company's finances, that it has acknowledged that it will need

additional cash to meet outstanding payments due this month.

77. On or about January 9, 2009, the Indian government arrested defendants B. and

Rama Raju in connection with the fraud alleged herein.

78. On or about January 10, 2009, the Indian government arrested defendant

Srinivas V. in connection with the fraud alleged herein.

79. On or about January 10, 2009, the Indian government fired the remaining

directors of Satyam.

80. Since then, the Indian government appointed six new directors to the

Company's Board.

81. The Indian government has also announced that it is investigating the

Company's outside auditors, PricewaterhouseCoopers.

PLAINTIFF'S CLASS ACTION ALLEGATIONS

82. Plaintiff brings this action as a class action pursuant to Federal Rule of Civil

Procedure 23(a) and (b)(3) on behalf of a Class consisting of all those who purchased or

otherwise acquired Satyam ADRs during the Class Period and who were damaged thereby (the

20

"Class"). Excluded from the Class are defendants herein, the officers and directors of the

Company at all relevant times, members of their immediate families and their legal represen-

tatives, heirs, successors or assigns, and any entity in which defendants have or had a controlling

interest.

83. The members of the Class are so numerous that joinder of all members is

impracticable. Throughout the Class Period, Satyam ADRs were actively traded on the NYSE.

While the exact number of Class members is unknown to Plaintiff at this time and can be

ascertained only through appropriate discovery, Plaintiff believes that there are hundreds or

thousands of members in the proposed Class. According to Satyam, as of March 31, 2008, there

were reportedly more than 65 million ADRs outstanding (representing 130.5 million shares).

84. Plaintiffs claims are typical of the claims of the members of the Class as all

members of the Class are similarly affected by defendants' wrongful conduct in violation of

federal law that is complained of herein.

85. Plaintiff will fairly and adequately protect the interests of the members of the

Class and has retained counsel competent and experienced in class and securities litigation.

Plaintiff has no interests antagonistic to or in conflict with those of the Class.

86. Common questions of law and fact exist as to all members of the Class and

predominate over any questions solely affecting individual members of the Class. Among the

questions of law and fact common to the Class are:

• whether the federal securities laws were violated by defendants' acts as allegedherein;

• whether statements made by defendants to the investing public during the ClassPeriod misrepresented material facts about the business , operations and results ofSatyam;

• whether defendants acted knowingly or recklessly in issuing false and misleadingfinancial statements;

21

• whether the market prices of Satyam ADRs during the Class Period were artificiallyinflated because of the defendants' conduct complained of herein; and

• whether the members of the Class have sustained damages and, if so, what is theproper measure of damages.

87. A class action is superior to all other available methods for the fair and efficient

adjudication of this controversy since joinder of all members is impracticable. Furthermore, as

the damages suffered by individual Class members may be relatively small, the expense and

burden of individual litigation make it impossible for members of the Class to individually

redress the wrongs done to them. There will be no difficulty in the management of this action as

a class action.

88. Plaintiff will rely, in part, upon the presumption of reliance established by the

fraud-on-the-market doctrine in that:

• defendants made public misrepresentations or failed to disclose material facts duringthe Class Period;

• the omissions and misrepresentations were material;

• the ADRs of the Company traded in an efficient market and the Company's securitieswere followed by securities analysts employed by major brokerage firms;

• the misrepresentations and omissions alleged would tend to induce a reasonableinvestor to misjudge the value of the Company's ADRs; and

• Plaintiff and members of the Class purchased Satyam ADRs between the time thedefendants failed to disclose or misrepresented material facts and the time the truefacts were disclosed, without knowledge of the omitted or misrepresented facts.

89. Based upon the foregoing, Plaintiff and the members of the Class are entitled to

a presumption of reliance upon the integrity of the market.

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CLAIMS FOR RELIEF

COUNT I(Against Satyam , B. Raju , Rama Raju and Srinivas V. For Violations of

Section 10(b) And Rule 10b-5 Promulgated Thereunder)

90. Plaintiff repeats and realleges each and every allegation contained above as if

fully set forth herein.

91. This Count is asserted against defendants Satyam, B. Raju, Rama Raju and

Srinivas V. and is based upon Section 10 (b) of the Exchange Act, 15 U.S.C. § 78j(b), and Rule

I Ob-5 promulgated thereunder by the SEC 17 C.F.R. § 240.1 Ob-5.

92. During the Class Period, defendants engaged in a plan, scheme, conspiracy and

course of conduct, pursuant to which they knowingly or recklessly engaged in acts, transactions,

practices and courses of business which operated as a fraud and deceit upon Plaintiff and the

other members of the Class; made various untrue statements of material facts and omitted to state

material facts necessary in order to make the statements made, in light of the circumstances

under which they were made, not misleading; and employed devices, schemes and artifices to

defraud in connection with the purchase and sale of securities. Such scheme was intended to,

and, throughout the Class Period, did: (i) deceive the investing public, including Plaintiff and

other Class members, as alleged herein; (ii) artificially inflate and maintain the market price of

Satyam securities, including ADRs; and (iii) cause Plaintiff and other members of the Class to

purchase ADRs at artificially inflated prices . In furtherance of this unlawful scheme, plan and

course of conduct, defendants, and each of them, took the actions set forth herein.

93. Pursuant to the above plan, scheme, conspiracy and course of conduct, each of

the defendants participated directly or indirectly in the preparation and/or issuance of the

quarterly and annual reports, SEC filings, press releases and other statements and documents

23

described above.

94. By virtue of their positions at Satyam, defendants had actual knowledge of the

materially false and misleading statements and material omissions alleged herein and intended

thereby to deceive Plaintiff and the other members of the Class, or, in the alternative, defendants

acted with reckless disregard for the truth in that they failed or refused to ascertain and disclose

such facts as would reveal the materially false and misleading nature of the statements made,

although such facts were readily available to defendants. In addition, each defendant knew or

recklessly disregarded that material facts were being misrepresented or omitted as described

above.

95. The Individual Defendants are liable both directly and indirectly for the wrongs

complained of herein. Because of their positions of control and authority, the Individual

Defendants were able to and did, directly or indirectly, control the content of the statements of

the Company. As a result of the dissemination of the aforementioned false and misleading

reports, releases and public statements, the market price of Satyam ADRs was artificially inflated

throughout the Class Period. In ignorance of the adverse facts concerning Satyam's business and

financial condition which were concealed by defendants, Plaintiff and the other members of the

Class purchased Satyam ADRs at artificially inflated prices and relied upon the price of the

ADRs, the integrity of the market for the ADRs and/or upon statements disseminated by

defendants and were damaged thereby.

96. During the Class Period, Satyam ADRs traded on an active and efficient market.

Plaintiff and the other members of the Class, relying on the materially false and misleading

statements described herein, which the defendants made, issued or caused to be disseminated, or

relying upon the integrity of the market, purchased Satyam ADRs at prices artificially inflated by

24

defendants' wrongful conduct. Had Plaintiff and the other members of the Class known the

truth, they would not have purchased said securities or would not have purchased them at the

inflated prices that were paid. At the time of the purchases by Plaintiff and the Class, the true

value of Satyam ADRs was substantially lower than the prices paid by Plaintiff and the other

members of the Class. The market price of Satyam ADRs declined sharply upon public

disclosure of the misconduct alleged herein to the injury of Plaintiff and Class members.

97. By reason of the conduct alleged herein, defendants knowingly or recklessly,

directly or indirectly, have violated Section 10(b) of the Exchange Act and Rule 1Ob-5

promulgated thereunder.

98. As a direct and proximate result of defendants' wrongful conduct, Plaintiff and

the other members of the Class suffered damages in connection with their respective purchases

of the Company's ADRs during the Class Period.

COUNT II

(Violations of Section 20(a) of theExchange Act Against The Individual Defendants)

99. Plaintiff repeats and realleges each and every allegation contained in the

foregoing paragraphs as if fully set forth herein.

100. This Count is asserted against the Individual Defendants and is based upon

Section 20(a) of the Exchange Act, 15 U.S.C. §78t(a).

101. (a) During the Class Period, the Individual Defendants participated in the

operation and management of Satyam, and conducted and participated, directly and indirectly, in

the conduct of Satyam's business affairs. Because of their senior positions, they knew the

adverse non-public information about Satyam's misstatement of income and expenses and false

25

financial statements.

(b) Because of their positions of control and authority as senior officers, the

Individual Defendants were able to, and did, control the contents of the various reports, press

releases and public filings which Satyam disseminated in the marketplace during the Class

Period concerning the Company's results of operations. Throughout the Class Period, the

Individual Defendants exercised their power and authority to cause Satyam to engage in the

wrongful acts complained of herein. The Individual Defendants therefore, were "controlling

persons" of Satyam within the meaning of Section 20(a) of the Exchange Act. In this capacity,

they participated in the unlawful conduct alleged which artificially inflated the market price of

Satyam ADRs.

102. Each of the Individual Defendants, therefore, acted as a controlling person of

Satyam. By reason of their senior management positions, each of the Individual Defendants had

the power to direct the actions of, and exercised the same to cause, Satyam to engage in the

unlawful acts and conduct complained of herein. Each of the Individual Defendants exercised

control over the general operations of Satyam and possessed the power to control the specific

activities which comprise the primary violations about which Plaintiff and the other members of

the Class complain.

103. By reason of the above conduct, the Individual Defendants are liable pursuant to

Section 20(a) of the Exchange Act for the violations committed by Satyam.

COUNT III

Against PwC for Violations of Section 10(b) of the Exchange Act and Rule 10b-5Promulgated Thereunder

104. PwC, a member-firm of PricewaterhouseCoopers International Ltd., has been the

outside auditor for Satyam since at least 2001, and provided clean audit opinions for the financial

26

statements that are now being retracted.

105. As already detailed, during the Class Period, PwC issued materially false and

misleading audit opinions which falsely stated that the Company's financial statements

"present[ed] fairly, in all material respects, the financial position of Satyam Computer Services

Limited" for each of the relevant years upon which PwC opined; that PwC had conducted its

audits in accordance with the standards of the Public Company Accounting Oversight Board

(United States); and that the internal controls at Satyam were adequate.

106. PwC has since admitted its audit opinions for the relevant period are no longer

reliable. On January 14, 2009, one week after defendant B. Raju made his admissions, PwC

issued a letter addressed to the Satyam board, which stated that it audit reports for the audit period

of June 2000 to September 2008 should no longer be relied on. In its letter, PwC conveniently

attempted to place blame solely at management's feet, claiming that it "placed reliance on

management controls over financial reporting, and the information and explanations provided by

the management, as also the verbal and written representations made to us during the course of

our audits."

107. On the same day, January 14, 2009, Satyam announced that it had hired

accounting firms Deloitte & Touche and KPMG to perform the restatement for Satyam.

108. PwC either knew of Satyam management's fraudulent accounting and permitted

it; or was grossly reckless in failing to detect it. Indeed, the fraud was of such a magnitude that

basic testing procedures required by applicable auditing standards would have uncovered the

accounting manipulations.

109. PwC had a duty to exercise due care and professional skepticism of Satyam's

management's representations concerning the Company's financial statements; and thus cannot

27

deflect responsibility for its actions by claiming reliance on Satyam management's "verbal and

written representations ." Due professional care requires the auditor to exercise professional

skepticism. This requires the auditor to diligently perform, in good faith and with integrity, the

gathering and objective evaluation of evidence. Id.

110. Had PwC exercised the requisite amount of skepticism, it would

have carried out basic testing procedures that would have uncovered this

massive fraud. For instance, defendant B. Raju admitted that the Company's $1 billion in

available cash was, in fact, non-existent. This misstatement would have been caught

had PwC conducted even the most basic testing procedures. The applicable auditing

standards require that the auditor obtain competent evidential matter supporting a company's

assertions with respect to cash balances. This required that PwC obtain corroborating

information by i) checking bank statements, and ii) getting direct confirmation from

the bank that the cash was actually there. Indeed, as the chairman of the Financial Accounting

Standards Board, Dennis Beresford, put it, "It's hard to miss $1 billion in cash." See Times

Online, Investors Raise Questions over PwC Satyam Audit, January 8, 2009, available at

http://business .timesonline .co.uk/tol/business /industry sectors/technology/article5476010.ece .

An executive from a Big Four consulting firm commented, "Even a kid could have caught onto

this. All the auditor needed to ask was for the bank statements of the various banks in which this

(supposed) cash had been deposited or mutual funds it had been invested in.... [e]ither the auditor

was hand in glove with Raju or there has been a serious error on its part." See The Morung

Express, Govt vows to end fraud as Satyam Scandal Shocks, January 9, 2009, available at

http://morun press.com/business /11222.html .

111. In addition, defendant B. Raju admitted that the Company had falsely stated the

28

amount owed to it by debtors as $ 545.65 million, when in fact , it was only owed $444.81

million. PwC was either aware of, or recklessly in failing to detect that, Satyam had significantly

overstated this amount. Verifying the amounts owed to a client is standard procedure as part of

the year-end audit. Normally, auditors contact the client's business partners directly to check the

amounts owed. Given that Satyam overstated this amount by $100 million, a significant amount,

PwC would likely have uncovered this fraud as well, had it conducted proper testing procedures.

112. Further, PwC ignored numerous additional red flags that should have alerted it to

the fact that fraud was afoot at Satyam, including, but not limited to:

a) For fiscal year ended March 31, 2008, the Company's net income grew 40%, while

operating cash flow grew by 30%.

b) A steep increase in assets held in the Company's bank deposits. In fiscal 2008, for

example, Satyam had $826.7 million of bank deposits, a 7.7% increase from fiscal

2007 but more than double the amount from 2006, when the company had $403.7

million in bank deposits.

113. Indeed, Merrill Lynch, which had been hired only ten days prior to the revelation

of the fraud, severed its ties with Satyam hours before B. Raju's confession to the fraud, because

Merrill had "come to understand that there were material accounting irregularities." The fact

that Merrill was able to uncover this fraud within ten days, while PwC failed to report any

irregularities for years, is also strongly suggestive that PwC either knew of the fraud and

condoned it, or was utterly reckless in carrying out its auditing responsibilities.

114. India's professional body for accountants, the Institute of Chartered Accountants

of India, has initiated an investigation into the role that PwC played in this accounting fraud.

The Institute of Chartered Accountants of India has the power to revoke the firm's license to

29

practice in the country.

115. By virtue of the foregoing, PwC has violated Section 10(b) of the Exchange Act

and Rule IOb-5 promulgated thereunder.

COUNT IV

Against PwC-IL for Violations ofSection 20(a) of the Securities Exchange Act of 1934

116. Plaintiff repeats and reallege the allegations of ¶¶ 1 through 115 of this

complaint as if fully set forth full herein.

117. As alleged more fully above, PwC's conduct violated Section 10(b) of the

Securities Exchange Act of 1934 (15 U.S.C.§ 78j(b)) and Rule lOb-5 promulgated thereunder.

118. At all relevant times, PwC-IL had the power, both direct and indirect, to control

PwC, which was a member firm of PwC-IL, did in fact exercise such control and was therefore a

"control person" within the meaning of Section 20(a) of the Securities Exchange Act of 1934 (15

U.S.C. §78(t)). As alleged herein, PwC-IL makes clear through its promotional materials and

advertising , including its website at www.pwc. com , that it is the organization that oversees all its

member locations worldwide, and that it is the governing body under which the auditing firms'

standards are set and carried out.

119. Plaintiff and the Class have been damaged by the wrongful conduct of PwC-IL

through its control of PwC, in that the wrongful conduct caused Plaintiff and the Class to

purchase ADRs at inflated values.

120. By reason of the foregoing, Plaintiff and the Class are entitled to a judgment again

PwC-IL awarding Plaintiff and the Class compensatory damages in an amount to be determined

at the trial of this action.

30

PRAYER FOR RELIEF

WHEREFORE, Plaintiff demands judgment against defendants as follows:

A. Determining that the instant action may be maintained as a class action under

Rule 23 of the Federal Rules of Civil Procedure, and certifying Plaintiff as the Class

representative and Lead Plaintiff;

B. Requiring defendants to pay damages sustained by Plaintiff and the Class by

reason of the acts and transactions alleged herein;

C. Awarding Plaintiff and the other members of the Class prejudgment and post-

judgment interest, as well as their reasonable attorneys' fees, expert fees and other costs; and

D. Awarding such other and further relief as this Court may deem just and proper.

DEMAND FOR TRIAL BY JURY

Pursuant to Rule 38(b) of the Federal Rules of Civil Procedure, Plaintiff hereby demands

trial by jury of all issues that may be so tried.

Dated: January 16, 2009

POMERANTZ HAUDEK BLOCKGROSSMAN & GROSS LLP

^--^ ".

Marc . Gr s (mi [email protected])Shia.

en

Muri a Steven ([email protected])Fei-Lu Qian ([email protected])100 Park Avenue, 26th FloorNew York, New York 10017Telephone: (212) 661-1100Facsimile: (212) 661-8665

31

POMERANTZ HAUDEK BLOCKGROSSMAN & GROSS LLP

Patrick V. Dahlstrom([email protected])

One North LaSalle Street , Suite 2225Chicago , Illinois 60602Telephone: (312) 377-1181Facsimile: (312) 377-1184

Counselfor Plaintiff

32

CERTIFICAT1ON PVRSUkJpNT TOSRCURmES LAW

1. 1, James Hamblin, make this declaration pursuant to Section 2113(a)(2) of the

Securities Exchange Act of 1934, as amended by the Private Securities Litigation Reform Act of

1995-

1 I have reviewed a complaint against Satyam Computer Services Ltd. ("Satyam5, and

authorize a filing of a. comparable complaint on my behalf.

3_ i did not purchase Satyam securities at the direction of plaintiffs counsel or to

parklclpate in any private action arising undst the 5aau6ties Exchange Act of 1934.

4. 1 am willing to serve as a reps entative party on behalf of a Clare as set forth in the

complaint, Including providing testimony at deposition and trial, if necsssary. I understand that the

Court has the authority to select the most adequate lead plaintiff in this action and that the

Pomerantz Firm may exercise its discretion in determining wllethar to move on my behalf for

appointment as lead plaintiff.

5. To the best of my current knowledge, the attached sheet Ilsis all of my transactions

In Satyam securities during the Class Period as specified in the complaint.

e. During the three-year period preceding the date on which this Certification Is signed,

I have not sought to se rve as a representative party on behalf of a class under the federal seeurflies

laws, except the following:

7. I agree not to accept any payment for serving as a rrepra^§entative party on behalf of

the class as set forth in the complaint, beyond my pro rata share of any recovery, except such

reasonable costs and expenses directly relating to the representation of the class as ordered or

approved by the Court.

I declare under penalty of perjury that the foregoing is true and correct.

I LIZI? jf/^ -Executed on O at ('(Date) (City, State)

l ^~(Slgna.u ) ^'^

(Type or Print Name)

LEST OF PU ASFS AND SALES

DATE PURCHASE OR NUMBER OF PRICE PER SHARESALE SHARES

PtA 6s69

James Hamblin, et al. v. Satyam Computer Services Ltd., et...

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