TERM PAPER

ON
REPORT ON
CORPORATE
FRAUD

Submitted to: Submitted By:

Mr.mAnish rajput Upasana dhir
 Rs1903a19
10904011

REPORT ON
CORPORATE FRAUDS

INDEX
 INTRODUCTION
 CORPORATE FRAUDS
 TOP 10 EXCLUSIVE CORPORATE FRAUDS
 SATYAM SCAM – BAAP IN INDIA
 FINDINGS AND SUGGESTIONS
 SUMMARY
 CONCLUSION
 BIBLIOGRAPHY

INTRODUCTION
 Accounting frauds, or corporate accounting frauds, are political and
business scandals which arise with the disclosure of misdeeds by trusted
executives of large public corporations. Such misdeeds typically involve
complex methods for misusing or misdirecting funds, overstating
revenues, understating expenses, overstating the value of corporate assets
or underreporting the existence of liabilities, sometimes with the
cooperation of officials in other corporations or affiliates. When people
think about fraud, their minds immediately make up images of shady
conmen, extracting money from the elderly and the unsuspecting. A few
might conjure images of the sweet talking lad, who swindles money using
"schemes" or the new age internet scammer who might use technology to
dupe online customers or bankers using various schemes like phishing
etc. But the greatest amount of fraud - measured in terms of monetary
value - is done by the corporations of the modern world. Let's take a brief
look at two of the world's biggest and most high profile corporate frauds
in recent times.

What is corporate fraud?

Corporate frauds are political and business scandals which arise with the
disclosure of misdeeds by trusted executives of large public corporations.
Such misdeeds typically involve complex methods for misusing or
misdirecting funds, overstating revenues, understating expenses, overstating
the value of corporate assets or underreporting the existence of liabilities,
sometimes with the cooperation of officials in other corporations or affiliates

WORLD’S MOST SHAMEFUL FRAUDS EVER…

There are no small frauds, only frauds that have not

Existed long enough to become big !
The last decade has seen an amazing number of corporate frauds, which have
had a spiraling effect on the incomes and savings of common people. Most
of these led to losses totaling billions of dollars, and have led to a clamor for
more stringent rules against corporate and accounting practices.

The first thing that crops up in the minds of people when the word
accounting fraud is mentioned is that of the energy company, Enron. Enron,
a multi billion dollar company, was becoming one of the largest energy
trading companies in the world. Few suspected that such a huge
conglomerate would face one of the biggest crashes in recent history. In fact
many magazines had even praised Enron as one of the most innovative
companies.. The company had managed to hoodwink everyone, from its
employees, to investors to financial analysts and regulators, including the
governments of various countries. The reason for the fraud was that the
company had, over a period of time, started to lose more money as its cash
flow dried up. To cover up the losses, the company, with the connivance of
its accountancy firm Arthur Anderson, tried to "cook the books", showing
profits out of nowhere and using techniques, that were later described as
innovative accounting practices. It was also seriously involved in various
bribery scandals in different countries.

As news started to get out via whistle blowers, the company was in deep
trouble and it filed for bankruptcy, the largest in American history. Share
prices fell from nearly $90 to less than 30 cents as news spread of its failure.
Many of its employees - who ironically had rated it as the best company to
work for, in a previous report - also found they had lost their entire life
savings. Many investors and stakeholders were furious and the crash caused
a ripple in the stock markets in 2001. The company and its accountancy firm
were soon wound up and criminal investigations were initiated.

A similar method of accounting fraud was carried out by the same

consultancy firm, for another company WorldCom, which too defrauded its
investors and lost billions of dollars in a similar scheme of manipulating the
figures.

Insider trading
Another method of corporate scamming is the insider trading done by many
companies. An insider trade involves selling or buying shares of a company,
where a person has either exclusive or first access to information that would
not be available to the public. This results in an unfair advantage for the
person since he/she can dump shares before the collapse or buy them for a
cheap rate and sell again after the market turns bullish, depending on the
insider "news" on the company. This type of trading is illegal throughout the
world. Enron incidentally was involved in insider trading as well. But the
most high profile case is that of Martha Stewart, a billionaire whose fortunes
were built around advice to homemakers. Martha Stewart, who admitted her
guilt and was sentenced to 5 months in jail, sold her shares in a
pharmaceutical company ImClone as news that the company's important
patent application had been rejected. She managed to sell the shares before
the news reached everyone and thus managed to get out before the share
prices of the pharmacy company collapsed.

Despite regulations and controls by the authorities, the corporate scandals

continue to grow and plague the world. This is partly attributed to the
ignorance on the part of investors, the hype surrounding a new/novel
approach by a company and plain malice on the part of the promoters, aided
by corruption on behalf of the authorities. As long as these things continue to
exist corporate frauds will thrive and white collar criminals will make a
killing at the expense of everyone.

TOP 10 CORPORATE FRAUDS.

1. Enron: Enron’s collapse in 2001 from a company worth $63.4

billion, to one seeking bankruptcy reorganization, came as a shock to
the general public. Considered to be a major accounting failure, it led
to the dissolution of Arthur Anderson, one of the world’s largest
accounting farms also. Over 15,000 employees of the corporate had
 most of their savings in stock, which fell from $83.01 in early 2001 to
$0.01 in October 2001.

ENRON was formed in 1985 by Kenneth Lay after merging Houston

Natural Gas and InterNorth. Several years later, when Jeffrey Skilling was
hired, he developed a staff of executives that, through the use of accounting
loopholes, special purpose entities, and poor financial reporting, were able to
hide billions in debt from failed deals and projects. Chief Financial Officer
Andrew Fastow and other executives were able to mislead Enron's board of
directors and audit committee of high-risk accounting issues as well as
pressure Andersen to ignore the issues.

Enron's stock price, which hit a high of US$90 per share in mid-2000,
caused shareholders to lose nearly $11 billion when it plummeted to less
than a $1 by the end of November 2001. The U.S. Securities and Exchange
Commission (SEC) began an investigation, and Dynegy offered to purchase
the company at a fire sale price. When the deal fell through, Enron filed for
bankruptcy on December 2, 2001 under Chapter 11 of the United States
Bankruptcy Code, and with assets of $63.4 billion, it was the largest
corporate bankruptcy in U.S. history until WorldCom's 2002 bankruptcy

2. BERNIE MADOFF
On 29 June, 2009, Bernie Madoff was sentenced to 150 years in prison, the
maximum sentence that could be given to anyone convicted of corporate
fraud. He ran an amazing ‘Ponzi” scheme for his clients, showing falsified
profits, and gains with the money that they had given him for investment.
SEC authorities believe the actual net fraud will be between $ 14 & $17
billion.
3. Subprime Mortgage Crisis
This was not the crisis of a single corporate but it led to the demise of many
other corporate. The repercussions can still be felt throughout the US and
even Europe. It has had an adverse effect on most of the banks and financial
institutions, and has led to large scale reform in the financial sector rules and
regulations.

4. Satyam Computers

India’s biggest corporate scam was disclosed when Ramalinga Raju, the
CEO of Satyam Computers declared that the company’s profits had been
overstated for many years. Inflated bank figures, understated liabilities and
over 10,000 non-existent employees were among the many fraudulent
practices being indulged in to cross 7000 crone rupees.
 5. Worldcom

On July 21, 2002, when Worldcom filed for bankruptcy under Chapter 11, it
was USA’s largest corporate failure. The accounting scandal covered $ 11
billion and it seems the workings of the company were masked by painting a
false picture of growing profits and margins. In 2004, it emerged from the
bankruptcy proceedings with $5.7 billion in debt and $ 6 billion in cash.

6. Barlow Clowes

One of England’s largest corporate scandals, it led to the collapse of the

company, after it was disclosed that it’s co-owner Peter Clowes, had spent
over $100 million of his clients money in items such as luxury yachts,
private aircrafts and cars. A gilts management service, in the 1980s, it
controlled millions of pounds of it is clients funds.

7. Daewoo

Prior to is dismantling in 1999, Daewoo was the second largest corporate in

Korea. It collapsed due to bad financial management, due to the worldwide
financial crisis and due to growing labor unrest. The collapse led to losses in
billions of dollars and became a political crisis. The detailed list of issues
includes helping to falsify Daewoo's books to inflate its assets 41 trillion was
leader of Daewoo, Mr. Kim was one of his country's heroes. Daewoo's
failure was a huge blow to Korea--the fact that misdeeds were at the heart of
the failure clearly struck a chord. on. This is roughly $43 BILLION US
dollars at today's exchange rates.

8. Fannie Mae & Freddie Mac

Before their collapse in 2008, these two companies owned more than half of
USA’s $ 12 trillion mortgages. In September that year they had to be placed
in conservatorship by Federal Housing Finance Agency, as “one of the most
sweeping government interventions in private financial markets in decades”.

9. AIG

An American Insurance Company, AIG went into a crisis mode when in

2008, its credit rating were downgraded to below “AA’ levels and they were
unable to access any funds to tide over their crisis. Once the 18th largest
company in the world, it is disclosure of financial losses and frauds, led to its
downfall.

10. Phar-Mor

In 1992, Phar-Mor had over 300 stores and over 25,000 employees. It ran a
successful chain of discount drugstores throughout America, and it ran on a
policy of small profits, but large quantities of merchandise. However, the
owners in 1992 were accused of large scale embezzlement, deceptive
inventories and fudged data.
 SATYAM SCAM - BAAP IN INDIA
(satyam-asatyam)

Satyam Computer Services Ltd. is a Consulting and

information technology Services Company based in
Hyderabad, India .It was found in 1987 by B.Ramalinga Raju.
The company offers information technology (IT) services
spanning various sectors, and is Listed on the New York
Stock Exchange and
Euronext.It is considered as an icon among the IT companies
and at one point had over billion dollar revenue

Satyam's network covers 67 countries across six continents.

The company employs 40,000 IT professionals across development centers
in India, the United States, the United Kingdom, the UAE, Canada, Hungary,
Singapore, Malaysia, China, Japan, Egypt and Australia.
It serves over 654 global companies, 185 of which are Fortune 500
corporations.

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 .
Raju confessed that Satyam's balance sheet of 30 September 2008 contained:

• inflated figures for cash and bank balances of Rs 5,040 crore

(US$ 1.04 billion) (as against Rs 5,361 crore (US$ 1.1 billion) crore
reflected in the books).
• an accrued interest of Rs. 376 crore (US$ 77.46 million) which was
non-existent.
• an understated liability of Rs. 1,230 crore (US$ 253.38 million) on
account of funds was arranged by himself.
• an overstated debtors' position of Rs. 490 crore (US$ 100.94 million)
(as against Rs. 2,651 crore (US$ 546.11 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.

He 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 (annualised revenue run rate of Rs 11,276 crore (US$ 2.32
billion) in the September quarter of 2008 and official reserves of Rs 8,392
crore (US$ 1.73 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.
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

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 as India's own Enron
scandal.

Immediately following the news, Merrill Lynch (Now with Bank of

America) terminated its engagement with the company. Also, Credit Suisse
suspended its coverage of Satyam. 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. Satyam was the 2008 winner of the
coveted Golden Peacock Award for Corporate Governance under Risk
Management and Compliance Issues, which was stripped from them in the
aftermath of the scandal. The New York Stock Exchange has halted trading
in Satyam stock as of 7 January 2009. India's National Stock Exchange has
announced that it will remove Satyam from its S&P CNX Nifty 50-share
index on January 12. 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. 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 .

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

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 20 crore rupees every month for paying these
13,000 non-existent employees CEO and special advisors
On 5th 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

THE GOVERNMENT TOO IS EQUALLY GUILTY IN NOT HAVING

MANAGED TO SAVE THE SHAREHOLDERS,THE EMPLOYEES AND
SOME CLIENTS OF THE EMPLOYEES AND SOME CLIENTS OF THE
COMPANYFROM LOSING HEAVILY.

FINDINGS AND SUGGESTIONS

WHAT MANAGEMENT COULD DO?

 CHANGE THE NAME OF THE COMPANY

 RECONSTITUTION OF THE BOARD
 TRY BUILDING CONFIDENCE IN THE CLIENTS TO GET BACK
THE LOST PROJECTS.
 THE IMAGE OF THE COMPANY CAN BE REVIVED BY THE
SERIES OF PRESS CONFERENCS HIGHTLIGHTING THE
ONGOING CONTRACTS WITH THE CLIENTS
 IT COULD ALSO BE MERGED WITH ANY OTHER SOFTWARE
COMPANY
Tech Mahindra wins bid for Satyam Scam
Tech Mahindra is paying Rs1757 crore for a 31% stake in the company, or
Rs 58 per share. Satyam Computer Services has known zoomed 15% to Rs
54.20 ahead the announcement of the highest bidder for the company on
April 13, 2009. In India this moment was full of praise for the manner and
speed with which the reconstituted board of Satyam Computer Services
found a strategic investor.

SUMMARY

From Enron to Tyco to Mark Cuban, corporate fraud continues to plague

businesses and hurt consumer trust. According to the IRS, corporate fraud
encompasses violations of the Internal Revenue Code (IRC) and related
statutes committed by large, publicly traded or private corporations, and/or
by their senior executives.
Corporations are the cornerstone of the economy. While they were first
formed as non-profit organizations created for the public good in European
societies, by the 17th century, the focus for many corporations changed and
the drive to make money took precedence over working for the betterment of
society. Even so, corporations provide millions of jobs for citizens in our
communities and are a key component in the success of a prosperous
economy. But it adversely affects when corporations don’t follow the
rulesThis affect the employees who work for the corporations and the
communities they live in.Several high profile corporate fraud cases in both
United States,Canada and other countries such as Enron, World Com, Tyco,
BreX,satyam, Hollinger Inc. have been reported over the last decade
 REFERENCES
• www.satyam technologies.com
• TOP EXCLUSIVE FRAUDS,WWW.CORPORATE
PREDATORS.COM

• WWW.ECONOMICNOISE.COM