The most
controversial and biggest corporate and accounting fraud in the Indian
Information Technology sector was the Satyam scam. The biggest corporate scam
rocked the nation on January 7, 2009, as B Ramalinga Raju, Chairman and founder
of Satyam Computer Services, resigned after confessing manipulation of the Company's
accounts for Rs.14000 crores for several years.
The Satyam
scam or The Satyam Computer Services Scandal was a scam affecting Satyam
Computer Services. The chairman of the Satyam, Byrraju Ramalinga Raju,
confessed that the Company's accounts had been falsified for many years by him.
History
of Satyam Computer Services –
Founded in
1987, Satyam Computer Services had revenues of 2 billion USD and a global
headcount of 52000 by the year 2008. It was one of India's top IT companies and
had clients, including 185 Fortune 500 companies.
B Ramalinga
Raju founded the Company in Hyderabad and was chairman of the Company from 1987
to 2009.
The Satyam Scam –
The Satyam
scam is about corporate governance and fraudulent auditing. The Company
misrepresented its accounts to its board of directors, stock exchange,
regulators, investors, and stakeholders.
The Satyam
scam misled the market and others by showing false revenues, operating profits,
interest liabilities, and cash balances. In this Satyam Scam, the role of
external third-party auditors who ensure no financial bungling is done to carry
out the promoter's interest or hide facts was a point of the question.
Raju
brothers Rama Raju and Ramalinga Raju, who founded the Company in 1987, took it
to a successful place. The Satyam got listed on the Bombay Stock Exchange in
1991, and upon listing, shares of the Satyam were oversubscribed by 17 times. The
Company succeeded in its field and bagged multiple awards over the period.
Satyam
had revenues of 2 billion USD in 2008, with operations in over 20 countries
worldwide. The real problem started when the Satyam management decided to take
over Maytas Infrastructure and Maytas Properties for an estimated Rs. 7800 crores
in December 2008. But the institutional investors strongly opposed this deal,
and it was abandoned. This acquisition was the last attempt by Ramalinga to
eliminate the gap between actual figures and inflated ones; three weeks later, in
January 2009, Raju resigned as CEO of Satyam and made stunning confessions.
· - CBI found Financial irregularities of
Rs. 7800 crores in the Satyam Scam.
· - It discovered over 7500 fake invoices
in the Satyam scam
· - Satyam reported a fictitious
revenue of around Rs.5300 crore between the period of April 2002 to September
2008
· - CBI found Rs. 899 crores of fake interest
income recorded in the books of the Satyam
· - Fake Foreign Exchange Gain of Rs. 206
crores was found in the Satyam scam.
Series of
Events in Satyam Scam -
· - Fake
bills and invoices were created using software applications
· - Fake
Revenues were increased in the books by Ramalinga, and it projected a
tremendous increase in profits
· - The
well-off Satyam attracted a lot of investors, which resulted in a rising
share price
· - They used over 350 investment companies to divert funds from Satyam, allegedly, one such company had paid up capital of Rs. 5 lacks, invested Rs. 90 crores and received unsecured loans of Rs. 600 crore
· - Ramalinga
used this cash to invest in the booming realty sector across Andhra Pradesh
· - The
Satyam brothers, who were the founder and promoters of the Company, sold their
holdings at higher prices and took a profit of nearly Rs. 1200 crore
· - The
brothers were adjusting and modifying the books, and bank statements in their
favor
·
- The PWC, who were auditors of the Satyam, failed
terribly in their job to verify invoices and bank statements.
· - There
was very little cash with the Company as most of the cash and bank balances in
the balance sheet of Satyam were fictitious.
· - The
Raju brothers decided to invest in Family-controlled Maytas to fill the gap,
but the board of directors didn't like the decision. It created a lot of
questions and problems for them.
When Raju
was unable to manage the pressure and find another escape plan, he resigned as
CEO and confessed that he had manipulated the accounts of Rs. 14000 in several
forms. On January 7, 2009, he sent a confession letter of 5 pages to SEBI. In
one of them, he said, "It was like riding a tiger without knowing how to
get down without being eaten."
CBI took
over the case of Satyam Scam and arrested Raju Brothers. The court ordered imprisonment
for Raju Brothers and PWC auditors with a huge penalty.
After the
Satyam Scam is revealed, the Government appointed a board to sell the Satyam
computer services; Tech Mahindra purchased a major stake in the Satyam. In June
2009, Tech Mahindra renamed itself Mahindra Satyam. Finally, Mahindra Satyam
was merged with Tech Mahindra in 2013.
Eventually,
Satyam Scam, the biggest corporate fraud, forced SEBI to implement a series of
measures to improve corporate governance.
