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Satyam Scam

Story of the BIGGEST CORPORATE FRAUD in India..


• Satyam Computer Services Limited was founded in 1987 by
Mr. B Ramalinga Raju

• The company offers consulting and information technology


services spanning various sectors.

• The company was listed with New York stock exchange,


National stock exchange, and the Mumbai stock exchange

Introduction
• Born on September 16,1954 in a traditional agricultural
family in Andra Pradesh

• Raju was first businessman in the field of construction


and textiles

• Founded Satyam in 1987

• Started Satyam Computers with 20 employees in 1987

Raju and Satyam


• Satyam was listed in India Stock Exchange in 1991

• Listed in New york Stock Exchange in 2001

• Contract for providing IT support services to The World


Bank in 2003

• 52000 employees working in Satyam in September 2008

• Had 13120 business associates serving 300 customers


world wide

Raju and Satyam


• Ernst & Young Entrepreneur of the Year Services Award, 1999

• Dataquest IT Man of the Year Award, 2000

• Asia Business Leader Award, 2002

• Ernst & Young Entrepreneur of the Year, 2007


(revoked after the fraud was confessed)

• Golden Peacock Award for Corporate Governance, 2008


(revoked after the fraud was confessed)

Awards
• The Black Day: 7th January, 2009

• Accounting fraud of over 7800 crores

• Accounting books of past 8 years were cooked

• Raju wrote in the confession letter

“Every attempt to fill the gap failed.. It was like riding a tiger,
not knowing how to get off without being eaten..”

The Revelation
• Satyam shares fell by 77% to Rs.175
• Biggest single day fall for a stock in stock market

• BSE sensex fell by 7.25%

• NSE fell by 6.18%

• Company’s worth decreased from 11,464 crores to 1,607


crores

After Revelation
• SEBI, the stock market regulator, said that, if found guilty, its
license to work in India may be revoked
• The New York Stock Exchange has halted trading in Satyam
stock
• India’s National Stock Exchange has announced that it will
remove Satyam from its share index
• 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.

After Revelation
• Falsifying the financials of the company
• Profits were inflated
• Overstated current assets and understated liabilities

Issues
• Information regarding fixed assets tampered
• Showed fixed assets of Rs. 3318.37 crores

• Actual figure only Rs. 9.96 crores

• Salaries moved into fake employee accounts

• Pooling company’s funds to purchase land


• Used funds to purchase land in the names of 330 companies

• 327 belonged to Raju’s family

Issues
• Failed to provide transparent and ethical disclosure

• Board of Directors was chairman friendly and failed to


perform their duties

• Violated rules of corporate governance

Issues
• Lack of financial expertise of Board of Directors

• Board of Directors lacked industrial experience

• Board was unduly reliant on auditors

• Failed to distinguish the roles of management and board

• CEO and Chairman of company were brothers

Underlying Issues
• Put a Question mark to the corporate governance practices in
India
• Casted doubts about the fair and independent role of auditors
• Authenticity of Pricewaterhouse damaged
• Nation’s loss of trust and credibility in the eyes of foreign
investors
• Employees suffered from financial, social and emotional
damage
• Loss to clients, shareholders and lenders

After effects on society


• Ramalinga Raju : Former Chairman
• B. Rama Raju : Brother of Ramalinga Raju and
Former Managing Director

• V. Srinivas : Former Chief Financial Officer

• S. Gopalakrishnan : PriceWaterhouse auditor

• Talluri Srinivas : PriceWaterhouse auditor

Major culprits
• Pressure to meet expectations
• Growing competition
• Threat of being overtaken
• Over confidence
• On their abilities
• Personal benefits
• Siphoning off funds
• Salary of non-existent 13000 employees

Probable reasons
• Raju was probably convinced that the gap in the balance
sheet reached unmanageable proportions and could not be
filled anyhow in the future

• A whistleblower whose email to a Satyam board member


triggered a chain of events.

Why a confession?
• Under reconstruction
• New board appointed by government
• Former Nasscom Chief- Kiran Karnik, Chairman HDFC – Deepak
Parikh, Former SEBI member- C. Achuthan

• Satyam shares gained over 44% on the day after the


appointment of new board
• New CEO: A.S. Murthy
• Tech Mahindra acquired Satyam on April 13, 2009 with new
brand identity “Mahindra Satyam”

Satyam now
• B Ramalinga Raju and his brother Rama Raju (former M.D)
have been sentenced to seven years’ jail and fined Rs 5 crores
each
• Similar sentence on eight others including V. Srinivas (former
CFO), S. Gopalakrishnan (Pricewaterhouse Partner), Talluri
Srinivas (Pricewaterhouse Partner), B Suryanarayana Raju, G
Ramakrishna, G Venkatapathi Raju, Srisailam and VSP Gupta
(all former Satyam staff)

Satyam verdict
Thank you…