The slim 38-page report of the US Securities and Exchange Commission (SEC) picks one clear line of reasoning, surrounds it with evidence, and underlines it all with the relevant rules that were violated, to rap Price Waterhouse with a $7.5 million penalty.

The clarity of the prosecution makes junk of the thousand details of the case, the irrelevant dead-ends and the non-sequiturs and just goes for the jugular. This is the exact opposite of the approach taken by the Indian investigating agencies, which, as in the case of the 2G spectrum scam, have taken a clear case of fraud but added so many strands to make it absolutely chaotic. We shall have to wade through several committees to find out if there is a case of fraud to then begin trial in the case.

The report also makes it amply clear that Price Waterhouse India was not correct when it claimed it was the victim of the fraud committed by the former Satyam management. The SEC order makes it clear that the auditors had enough occasion to suspect a fraud and on one occasion were also alerted by one of their network firms from abroad.

None of the Indian investigative agencies or others, including the ministry of corporate affairs, the regulator, ICAI or CBI, have been able to make this accusation stick in the last two years.

Thus, the SEC report shows why it is necessary to employ specialists and then give them the freedom to investigate if there is to be any hope in hell of cracking mischief in white collar crime. There is no record that the SEC used thousands of hours of cross-questioning but instead used its understanding of audit laws and common sense to come to its conclusion, explicit enough to stand scrutiny in a court of law.

This is worth emphasis. Under US laws, SEC has to present its case before an administrative law judge for handing down punishment. The judge, while under the administrative ambit of SEC, is appointed independently and decides on the quantum of punishment. In this case, of course, this did not reach the adjudication judge as Price Waterhouse?s plea for a consent order was accepted.

The Indian market regulator does not have to deal with such a system. For each case, it sets up its own adjudication officer, who hands down the award. Since the orders are subject to the scrutiny of an appellate tribunal, that has possibly goaded the Sebi orders to become a model for clarity among all the Indian agencies.

So what is the line of argument of the SEC? It just focuses on the fact that the $1-billion cash balance the former Satyam management claimed it had stashed in several banks from 2005 to 2008 never existed. Price Waterhouse India is culpable as it accepted the contention of the company without doing an independent check-up with the banks about whether the cash was really present. Worse, at times, the auditors, when faced with the evidence from banks that there was no cash or a fraction of the sum claimed by the IT company, decided to believe the management view that the cash existed. The audit reports certified Satyam?s spurious financial results, leading to a ramp-up of its share prices and, therefore, a huge stock market fraud.

It is a grim enough accusation to put the company behind bars for a long time to come.

The consent order notes that ?During (those years) the Satyam engagement (audit) team received confirmations, in the requested format, directly from branches of certain banks (which apparently held the Satyam cash balances)?. At the same time, the team ?also received confirmations from Satyam management … (but) not in the format requested by the engagement team?.

And here is the critical link. ?The bank provided confirmation responses reflected significantly lesser cash balances than Satyam management represented to be held in fixed deposits at the same banks?. So the auditors were not misled by genuine looking sham documents, as PwC has protested all along. The papers were in the wrong format and, to cap it, showed huge discrepancies with the bank supplied figures. As the table shows, the differences were massive. The process falls foul of the Public Company Accounting Oversight Board standards that must guide audit work in jurisdictions like the US and even India.

Not only this, but in Satyam?s 2008 fiscal year audit, ?a partner from another PwC network firm outside of India alerted members of the Satyam engagement team that its cash confirmation procedures appeared substantially deficient?. It adds if this lead had been followed upon, the fraud could have been uncovered in 2008 itself.

In sum, the SEC order says the rot at Satyam was not limited there, but spread as a ?quality control failure throughout PW India?. Of course, the regulator accepts that there has been a drastic clean up since then, including a rule that all employees are basically read the riot act before they take up any audit work.

Compare this with the 2,500-page chargesheet the CBI and Serious Fraud Investigation Office has been rustling up in three instalments (the fourth is on the way). Those chase the real estate investments made by the Raju clan, the details of front companies, credit card bills of his family and the method in which the invoices were generated. Since the CBI is also chasing Letters Rogatory from six countries to track benami assets of Raju, and KPMG is doing a forensic analysis of how the cash was siphoned to Maytas etc, those are yet another dimension to the fraud altogether.

As I have pointed out in earlier columns, too, this mountain could be replaced with a pithy line of indictment that judges would understand, the defence would find impossible to find holes in, and conviction could follow fast.

?subhomoy.bhattacharjee@expressindia.com