Satyam

Satyam, the Indian outsourcing company at the center of a massive fraud

investigation continues to be mired in confusion and controversy.
Earlier in the week, the company’s former CFO appeared to give two
PricewaterhouseCoopers audit partners a pass, saying:
…that auditors S Gopalakrishnan and Talluri Srinivas of audit firm Price
Waterhouse had no role to play in the fraud, as they were given forged
documents by the company management.
At the time I thought it unusual as a fraud case is often characterized as one of
rats deserting sinking ships, with people taking everyone down with them. Then
the story took a fresh twist when the New York Times asserted that the CBI, the
Indian equivalent of the FBI had concluded its investigation and is charging
nine people with fraud related offences including the PwC auditors:
After a 45-day investigation, the bureau said it was charging six people from
Satyam Computer Services, two suspended auditors from
PricewaterhouseCoopers and an outside adviser with “criminal conspiracy,
cheating, cheating by personification, forgery of valuable security, forgery for
the purpose of cheating, using a forged document as genuine, falsification of
accounts and for causing disappearance of evidence.”
Not surprisingly, PwC was said to be ‘disappointed.’ I am confused. It seems
that despite the exhortations of the former CFO, the CBI doesn’t believe him
and consider PwC to be complicit in the affair.
Our sister title in Asia now reports that:
…the investigations have concluded, it is a matter of days before Satyam
is likely to be sold. The company already has a list of suitors including Wilbur
L. Ross Jr., the New York-based investor and rehabilitator of distressed assets
globally, construction and engineering conglomerate Larsen & Toubro, Tech
Mahindra, and private equity firm Apax Partners.
But bidders have complained about a lack of transparency and the need for
access to Satyam’s books. Like everything concerning Satyam, even the sale is
mired in controversy.
[My emphasis added]
In my last Satyam post, I considered the disposal as one characterized by
indecent haste with political overtones. Commenters thought I was nuts and/or
over reaching. They won’t be the first, or the last to hold that opinion. It now
seems that my concerns about the ability to undertake proper due diligence were
justified.
Regardless of the sale which some of my sources now believe will take the form
of an auction, the Satyam story is far from over. It has been a blow to the Indian
outsourcing industry at a time when the global economy is in poor shape and
where confidence is everything. The real tragedy is for the many fine people
who work or worked at the company.
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Satyam Fiasco - One man's mistake
- by Sri Das 08 Jan 2009
This story has been read 925 times.
Category: News
Topic: Others

Satyam head Ramaliinga Raju disclosure is sure to rake up some dust, it will
result in people already indulging in fraud in other companies to stop or hide
more carefully [Which I personally think is done in most companies] and in
government indulging in some knee-jerk reaction.

Keeping aside the rights and wrongs let us see what the impact will be:

1. Investors loosing confidence in outsourcing to India - this will result in us

loosing billions of dollars in investments from US, Europe and elsewhere

2. Thousands of Indians loosing their jobs because of new opportunities in

outsourcing industry

3. Thousands more passive benefactors of outsourcing loosing their livelihood

Best we can do now is not to term this scandal in American jargons such as
'Indias Madoff' or 'Indian Enron' - What Enron and Madoff have done are
gigantic frauds compared to Satyam, Raju has not usurped investors savings,
unlike New York Fraudster Madoff, nor did he destroy the life savings of
thousands of retired people as did Enron. What he did was inflate the profits so
as to make his company look good, so as to grab more investments and therby
profit ALL the shareholders - REMEMBER THIS IS NOT A PRIVATE
COMPANY, A IPO SHARES IT PROFITS WITH ITS SHAREHOLDERS
NOT AMONG ITS BOARD MEMBERS. Of course there is fraud here, If this
would have happened in China, it would have been kept in wraps and the guilty
secretly prosecuted, but look at us, this news is now all over the world, if a
multi national company now wants to outsource their work, where would they
go? China or India?

We are not a nation of Mahatmas but a nation of corrupt politicians, all those
charltans outbursting with hypocracy and showering abuse on Raju should first
look into their own deeds, Satyam's Raju disclosure has a bright spot - LET US
SEE HOW MANY PEOPLE IN PRIVATE SECTOR OR PUBLIC SECTOR
PUBLICLY CONFESS THEIR MIS-DOINGS? - NONE!

We read about people lilke Laloo who ate away crores in the name of animal
feed, of Bofors accused who stashed away billions in Swiss banks, of
Mayawatis who sends her goons to collect money and many more politicians
who swindle daily - who is questioning them or AUDITING them?

Raju is credited with establishing Byrraju foundation, EMRI - the "108" phone
number that people across Andhra use [for emergency health care which sends
Ambulances and dispatches to nearest hospitals free of cost] and almost
everyone agrees that its services has saved thousands of people in rural and
urban areas, in setting up clean water resources in many villages it has adopted.
This foundation is run as Non profit institute and is being tried by other states
for its success. [http://www.byrrajufoundation.org]

Let us be realistic, if we witch-hunt Satyam, it is not just Raju who will be

punished but the 50,000 Indians who are employed with this company. There is
a real danger of this company shutting down and all those people loosing their
jobs.

LET US NOT SHOOT OURSELVES IN THE FALSE GARB OF

RIGHTEOUSNESS

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SEE THE LATEST COMMENTS (3)

Beena - Mumbai on 1/5/2010 5:51:20 PM
i completely agree with your statements given, our whole system is corrupted
from clerk to CEO then why one individual be blame for his deeds ? Now the
main focus should be that how to overcome the situation rather just blaming or
complaining. why history exists ? it exists because one should learn from the
past and also to avoid mistakes if any so concentrate in your future which will
be beneficial for the company as well as for the employees.
ReplyForwardReport Abuse

sadhana - pune on 1/2/2010 11:10:25 AM

ya it was good. but the fact or the incident can't be ignored.it has affected the
company as well as the country
ReplyForwardReport Abuse

Rajesh - Hyderabad on 1/8/2009 2:48:39 PM

very good, really well taken and presented. you are right, actually we are hitting
at someone who was honest while others are hiding their frauds right at this
point. no one is a bloody saint, they are all taking like ones in the fervent hope
they will escape by ensuring that the focus is on Raju. The authorities are like
our police, they will turn around and say there was no complaint, all the while
when they were pocketing dollars praying nobody watched. What this country
needs is not skills, it needs character, honesty, integrity and a committment to
stand by the truth, not just a comment at the bottom of the ashoka chakra and
the national symbol.
ReplyForwardReport Abuse
Byrraju Ramalinga Raju founded Satyam Computers in 1987 and was its
Chairman until January 7, 2009 when he resigned from the Satyam board after
admitting to cheating six million shareholders.[1][2] After being held
in Hyderabad's Chanchalguda jail on charges including cheating, embezzlement
and insider trading, Raju was granted bail on 18 August 2010.[3]
A botched acquisition attempt involving Maytas in December 2008 led to a
plunge in the share price of Satyam.[4] In January 2009, Raju indicated that
Satyam's accounts had been falsified over a number of years.[4] He admitted to
an accounting dupery to the tune of 7000 crorerupees or 1.5 Billion US
Dollars and resigned from the Satyam board on January 7, 2009.[5][6] In his letter
of resignation, Raju described how an initial cover-up for a poor quarterly
performance escalated: "It was like riding a tiger, not knowing how to get off
without being eaten."[7]Raju and his brother, B Rama Raju, were then arrested
by the Andhra Pradesh police on charges of breach of trust, conspiracy,
cheating, falsification of records. Raju may face life imprisonment if convicted
of misleading investors.[8] Raju had also used dummy accounts to trade in
Satyam's shares, violating the insider trading norm.[9] It has now been alleged
that these accounts may have been the means of siphoning off the missing
funds.[10] Raju has admitted to overstating the company's cash reserves
by USD$ 1.5 billion.[10][11] Raju was hospitalized in September 2009 following a
minor heart attack and underwent angioplasty. Raju was granted bail on
condition that he should report to the local police station once a day and that he
shouldn't attempt to tamper with the current evidence. This bail was revoked on
26 October 2010 by the Supreme Court of India and he has been ordered to
surrender by 8 November 2010.[12] The people of his native village,
Garagaparru, hail the development works undertaken by the Byrraju
Foundation, the charitable arm of Satyam.[13]
Ramalinga Raju may head India’s first BPO from prison.[
Satyam scandal
From Wikipedia, the free encyclopedia
The Satyam Computer Services scandal was publicly announced on 7 January
2009, when Chairman Ramalinga Raju confessed that Satyam's accounts had
been falsified.
Contents
[hide]
• 1 Details
• 2 Aftermath
• 3 New CEO and special
advisors
• 4 Acquisition by Mahindra
Group
• 5 Restatement of Results
• 6 See also
• 7 References
• 8 External links
[edit]Details
On 7 January 2009, company Chairman Ramalinga Raju resigned after
notifying board members and the Securities and Exchange Board of
India (SEBI) that Satyam's accounts had been falsified [1][2][3].
Raju confessed that Satyam's balance sheet of 30 September 2008 contained:
 inflated figures for cash and bank balances of 5,040 crore (US$1.09
billion) as against 5,361 crore (US$1.16 billion) reflected in the books.
 an accrued interest of 376 crore (US$81.59 million) which was non-
existent.
 an understated liability of 1,230 crore (US$266.91 million) on account of
funds was arranged by himself.
 an overstated debtors' position of 490 crore (US$106.33 million) (as
against 2,651 crore (US$575.27 million) in the books).
Raju claimed in the same letter that neither he nor the managing director had
benefited financially from the inflated revenues. He claimed that none of the
board members had any knowledge of the situation in which the company was
placed.[4][5]
He stated that:
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
significantly (annualized revenue run rate of 11,276 crore (US$2.45 billion) in
the September quarter of 2008 and official reserves of 8,392 crore (US$1.82
billion)). As the promoters held a small percentage of equity, the concern was
that poor performance would result in a takeover, thereby exposing the gap. The
aborted Maytas acquisition deal was the last attempt to fill the fictitious assets
with real ones. It was like riding a tiger, not knowing how to get off without
being eaten.
[edit]Aftermath

Raju had appointed a task force to address the Maytas situation in the last few
days before revealing the news of the accounting fraud. After the scandal broke,
the then-board members elected Ram Mynampati to be Satyam's interim CEO.
Mynampati's statement on Satyam's website said:
"We are obviously shocked by the contents of the letter. The senior leaders of
Satyam stand united in their commitment to customers, associates, suppliers and
all shareholders. We have gathered together at Hyderabad to strategize the way
forward in light of this startling revelation."
On 10 January 2009, the Company Law Board decided to bar the current board
of Satyam from functioning and appoint 10 nominal directors. "The current
board has failed to do what they are supposed to do. The credibility of the IT
industry should not be allowed to suffer." said Corporate Affairs Minister Prem
Chand Gupta. Chartered accountants regulator ICAI issued show-cause notice
to Satyam's auditor PricewaterhouseCoopers (PwC) on the accounts fudging.
"We have asked PwC to reply within 21 days," ICAI President Ved Jain said.
On the same day, the Crime Investigation Department (CID) team picked up
Vadlamani Srinivas, Satyam's then-CFO, for questioning. He was arrested later
and kept in judicial custody[6].
On 11 January 2009, the government nominated noted banker Deepak Parekh,
former NASSCOM chief Kiran Karnik and former SEBI member C
Achuthan to Satyam's board.
Analysts in India have termed the Satyam scandal India's own Enron scandal.[7].
Some social commentators see it more as a part of a broader problem relating to
India's caste-based, family-owned corporate environment
(http://kafila.org/2009/02/13/the-caste-of-a-scam-a-thousand-satyams-in-the-
making/).
Immediately following the news, Merrill Lynch now a part of Bank of
America and State Farm Insurance terminated its engagement with the
company. Also, Credit Suisse suspended its coverage of Satyam.[citation needed]. It
was also reported that Satyam's auditing firm PricewaterhouseCoopers will be
scrutinized for complicity in this scandal. SEBI, the stock market regulator, also
said that, if found guilty, its license to work in India may be revoked.[8][9][10][11]
[12]
Satyam was the 2008 winner of the coveted Golden Peacock Award for
Corporate Governance under Risk Management and Compliance Issues,
[13]
which was stripped from them in the aftermath of the scandal.[14] The New
York Stock Exchange has halted trading in Satyam stock as of 7 January 2009.
[15]
India's National Stock Exchange has announced that it will remove Satyam
from its S&P CNX Nifty 50-share index on 12 January.[16] The founder of
Satyam was arrested two days after he admitted to falsifying the firm's
accounts. Ramalinga Raju is charged with several offences, including criminal
conspiracy, breach of trust, and forgery.
Satyam's shares fell to 11.50 rupees on 10 January 2009, their lowest level since
March 1998, compared to a high of 544 rupees in 2008[17]. In New York Stock
Exchange Satyam shares peaked in 2008 at US$ 29.10; by March 2009 they
were trading around US $1.80.
The Indian Government has stated that it may provide temporary direct or
indirect liquidity support to the company. However, whether employment will
continue at pre-crisis levels, particularly for new recruits, is questionable [18].
On 14 January 2009, Price Waterhouse, the Indian division
of PricewaterhouseCoopers, announced that its reliance on potentially false
information provided by the management of Satyam may have rendered its
audit reports "inaccurate and unreliable"[19].
On 22 January 2009, CID told in court that the actual number of employees is
only 40,000 and not 53,000 as reported earlier and that Mr. Raju had been
allegedly withdrawing INR 20crore rupees every month for paying these 13,000
non-existent employees [20].
[edit]New CEO and special advisors

On 5 February 2009, the six-member board appointed by the Government

of India named A. S. Murthy as the new CEO of the firm with immediate effect.
Murthy, an electrical engineer, has been with Satyam since January 1994 and
was heading the Global Delivery Section before being appointed as CEO of the
company. The two-day-long board meeting also appointed Homi Khusrokhan
(formerly with Tata Chemicals) and Partho Datta, a Chartered Accountant as
special advisors [21][22].
[edit]Acquisition by Mahindra Group
On 13th April 2009, via a formal public auction process, a 46% stake in Satyam
was purchased by Mahindra & Mahindra owned company Tech Mahindra, as
part of its diversification strategy. Effective July 2009, Satyam rebranded its
services under the new Mahindra management as "Mahindra Satyam" with a
new corporate website www.MahindraSatyam.com.
C.P Gurnani is the current CEO.
[edit]Restatement of Results

As a result of the scandal, under the directions of the new Mahindra

management team, Satyam Computer Services restated its financial results for
the period 2002 to 2008. These restated results were published in September
2009.
[edit]See also
 Anglo Irish Bank hidden loans controversy – described as Ireland's Enron –
and its perpetrator Sean FitzPatrick
 Enron scandal
[edit]References
Satyam Controversy: The Unveiling
“…..It was like riding a tiger, not knowing how to get off without being
eaten…” – R. Raju after the debacle.
 R. Raju
Last year in November, Satyam Systems, a global IT company based in India,
was added to a notorious list of companies involved in fraudulent financial
activities, one that already includes MNC-names such as Enron, WorldCom,
Societe General, Parmalat, Ahold, Allied Irish, Bearings and Kidder Peabody
etc. After earning a Master’s in Business from Ohio University, in 1987,
Ramalingam Raju returned to India and co-founded Satyam with one of his two
younger brothers. The name means “truth” in Sanskrit. Deere (in which Raju
was earlier employed) was an early big customer. General Electricals soon
followed. The company became a skyrocket success, debuting on the Bombay
Stock Exchange in 1999. It acquired a New York Stock Exchange listing in
2001.
In 2006, Satyam had about 23,000 employees and was $1 billion in revenue!
But, the company was wrecked when on 30 September 2008, Raju confessed
that Satyam’s balance sheet contained inflated figures for cash and bank
balances, ,an understated liability, about two times overstated debtors’ position
of 490 crore (US$ 111.23 million) and an accrued interest of 376 crores (US$
85.35 million) which was completely non-existent! As the promoters held a
small percentage of equity, his primary concern was that poor performance
would result in a takeover, thereby exposing the gap. The aborted “Maytas
Acquisition Deal” was the last attempt to fill the fictitious assets with real ones,
the last hope for revival. Typically, it starts small.

Satyam Logo
The executives usually start by fudging the revenue-numbers a little and then it
grows. It is usually a response to competitive pressures. Companies do set
targets that they need to reach on a monthly, quarterly or yearly basis. These
targets come from their internal budgets or from the expectations of their
shareholders prescribed by their own stock-market analysts. The fiddle is easy
to rationalize at first. Managers and the executives typically have confidence in
their skills and believe that their company is fundamentally sound.
Sarcastically, “Little drops of water and little drops of sand make the mighty
ocean and the pleasant land”. The deficit piles up and it gets out of control.
When the company is unable to make up the gap, a larger distortion is needed to
cover it up. This in turn creates pressure to deliver even better results–which
leads to bigger cover-ups, and so on. This was exactly the case with Satyam.
Money is not being used to fill old holes. The situation is terrible, but good
leadership and fortitude could salvage it.