In the previous issue, we pointed out that Prithvi Information Solutions was to appoint a new auditor at its 23rd July EGM (Extraordinary General Meeting), since its auditor, PricewaterhouseCoopers (PwC), had resigned. Accordingly, Walker, Chandiok & Company is Prithvi’s new auditor. What the company has failed to disclose and investors do not know is that PwC refused to sign Prithvi’s annual report and has resigned without completing a single audit. It has only prepared two heavily qualified Limited Review Reports, one submitted on 31 January 2009 and another on 28 November 2008. The earlier report was signed by S Gopalkrishnan, the same PwC partner who has been arrested in the Satyam case.
That is not all. Prithvi has changed auditors at least four times in the past few years.The July 2008 audit report is signed by SR Batliboi (Ernst & Young), and the May 2007 audit is signed by Dokania S Kumar & Company. In May 2005, Patwari & Company was the auditor, but the 2006-07 annual report announced that it did not want to be reappointed after submitting a heavily qualified audit report. Not just the auditors, Prithvi’s Company Secretary has also changed twice in six months. In February 2009, the company had announced that 92% of the promoters’ holding was pledged and we already know that Deutsche Bank has alleged that its client list is fake. What more does SEBI need to start an investigation into Prithvi? Instead of the peer review of companies included in the Sensex and the Nifty, SEBI needs to pull out companies like Prithvi for a detailed review. But so far, there is a strange silence.
This is exactly why Moneylife maintains that neither SEBI nor the stock exchanges bother to verify if the rules they put in place are working. SEBI’s own recent investigations have thrown up embarrassing evidence of how market intermediaries circumvent its rules. The Pyramid Saimira investigation exposed how brokers such as Nirmal Kotecha create hundreds of front entities, whose depository and brokerage accounts are misused with impunity. It also showed how fake trading volumes are generated to obfuscate audit trails. The same investigation revealed the hollowness of the verification process of bourses. While exchanges painstakingly verify media reports, they blindly post information provided by companies without even a random verification process. Nothing has changed even after the Pyramid Saimira investigation alleged that management had made several misleading statements to the exchange. SEBI needs to wake up to the fact that a disclosure-based regime will work only if false information is severely punished; otherwise, investor confidence will be killed.