9/8/2014 The three phases of the Satyam scam - Livemint

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Tweet 0 First Published: Mon, May 04 2009. 10 50 PM IST
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CNBC TV18 SATYAM COMPANY NEWS SERIOUS FRAUD INVESTIGATION OFFICE AUDIT CONTROLS
The three phases of the Satyam scam
The three phases of the Satyam scam
Pranshu Sikka and Nayantara Rai / CNBC TV18
Updated: Mon, May 04 2009. 10 50 PM IST
New Delhi: An analysis of the report by the Serious Fraud
Investigation Office (SFIO) on the swindle at Satyam Computer
Services Ltd shows manipulation of software, and lack of audit
controls and systemic review.
The fraud can be divided into three phases. For nearly three years
since 1999, the firm rode on the Y2K phenomenon, which saw Indias
software industry get huge orders and earn good profits.
The second phase began in 2001. According to the SFIO report, the
falsification of accounts started then to keep Satyams share price
high. The company had gone public in 1992.
Riding on the high price, Satyam promoters offloaded their
shareholding in the market and used the proceeds to buy land. In
fact, founder B. Ramalinga Raju had set up as many as 374
infrastructure firms and eight investment companies to help him
become a land baron, the report has found. This phase continued till
2004, which was when things started going wrong.
The third and final phase started sometime in mid-2007 and continued till Rajus confession on 7 January
this year. During this period, the company showed huge cash balances and fixed deposits in several
banks of international repute. It was, however, actually starved of funds and the promoters were desperate
to raise money to keep the company afloat.
On 18 December last year, two days after the Satyam board met and decided to acquire two group firms
Maytas Infra Ltd and Maytas Properties Ltdindependent director Krishna Palepu received an
anonymous email.
The writer went by an alias, Joseph Abraham, and has been declared the whistle blower in the case. This
email laid bare the fraud.
Palepu forwarded the email to another independent director, M. Rammohan Rao, who chaired the Satyam
audit committee. Rao forwarded this email to S. Gopalakrishnan, partner at Price Waterhouse, the
companys auditors.
Gopalakrishnan told Rao over phone that there was no truth to the allegations and assured him of a
detailed reply in a proposed presentation before the audit committee on 29 December.
That meeting never took place. A new date10 Januarywas fixed.
Raju knew the clock was ticking for that audit meeting could have seen the committee members pose
tough questions. Raju had not taken Raos calls seeking an answer to the allegations in the whistle
blowers email.
Three days before the meeting, Raju confessed to Indias biggest corporate fraud.
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9/8/2014 The three phases of the Satyam scam - Livemint
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Tweet 0 First Published: Mon, May 04 2009. 10 50 PM IST
Satyam case: No
judgement date yet,
next hearing on 15
September
Satyam judgement date
likely to be known on
11 August
Satyam case: Court to
announce judgement
date on 28 July
Lessons from
Ramalinga Rajus
Satyam scam

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