SATYAM THE TRUTH

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ACKNOWLEDGEMENT
I wish to acknowledge my profound gratitude to all those who assisted in the completion of this project. Of the many people, who have been tremendously helpful in its completion, I m extremely thankful to my mentor Mrs. Neelam Goel for her constant support, guidance and hep during the corse of the project.

DECLARATION
I, PRACHI TANEJA, hereby declare tht this project is based on my understanding of this subject and has not been copied from any published source or website. I certify that all the work done on the project s the outcome of my own efforts and I have not imitated the project or any part, howsoever, from any pre-written source.

Under the Guidance of:

Mrs. Neelam Goel Commerce deptt Delhi University

Submitted by:
Prachi Taneja Bcom Hons 3rd yr Roll No. 770

SHYAMA PRASAD MUKHERJEE COLLEGE

TABLE OF CONTENTS
1) 2) 3) 4) 5) 6) 7) IT Industry Satyam Owners Satyam Profile Satyam Clients Structure of the board Satyam Share Holding Pattern Controversies surrounding Satyam Computers Ltd. :  Maytas Acquisition  Satyam s justification for Maytas buyout deal  Reaction of Investors  Result of Investor s Reaction  Upaid Law Suit  World Bank  Accounting Scandal 2009 Exposed  Raju s Confessions  Why confession How Did it all Begin??  Time line  What happened on 6th, 7th and 8th Jan 2009??  7 january TURNING POINT  Fabricated Income Statement  Technique Satyam used  Fake FD receipts and Employee nos.  Parallel Finance department Stock Charting Comparison Satyam and Maytas share prices The partners and other company bigwigs in crime  Price Water House Coopers Lawsuits filed against Satyam in US Views and Effects of the scam  Views  What went wrong??  The SEBI  The Bankers  Dependent and Independent Directors
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4 5 6 8 9 10

8)

9) 10) 11) 12) 13)

23 24 25 27 28

14) 15)

16) 17) 18)

19)

 Investment Bankers  Shareholders and the Media  Raju Brothers spends time in jail like Ordinary prisioners  Ram Mynamati CEO of Satyam  Over half a million people have a stake in Satyam survival  Andra Pradesh Govt. is not involved in the scam  Govt. plans Rs. 2000 crore package for Satyam  Satyam s market price cant be used for Valuation of Satyam  No advance tax paid by Satyam in FY09  Effects  Worried Investors Exit PwC clients  Govt. should protect worried Satyam employees  ICAI asks Pwc to explain Satyam Account  Restructuring Process  Impact on India INC.  NASSCOM advices against poaching Satyam clients  No delay in Satyam Probe  Prioritized Plan of action In the news This case led to??  Changes in regulation  Training  Some additional measures SWOT analysis Scenario after the scam Conclusion  Factors that contribute to the fraud  How did the scam happened  Corporate lessons to be learnt  Moral lessons for recapitulation Biblography

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41 43

44 45 46

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IT INDUSTRY
Information technology (IT), as defined by the Information Technology Association Of America (ITAA), is the study, design, development, implementation, support or management of computer-based information systems, particularly software applications and computer hardware . IT is one of the most important industries in the Indian economy. The IT industry of India has registered huge growth in recent years and is expected to grow continuously. India s IT industry grew from 150 million US Dollars in 1990-1991 to a whopping 50 billion US Dollars in 2006-2007. In the last ten years the IT industry in India has grown at an average annual rate of 30%. In 1970, high import duties had forced IBM to leave India. However, after the early nineties, many Multinational Information Technology companies, including IBM, have set up their operations in India. During the ten year period 1992-2002, the Indian Software industry grew at double the rate as the US software industry. Deregulation policies adopted by the Government of India have led to substantial domestic investment and inflow of foreign capital to this industry.

SATYAM OWNERS

B. Ramalinga Raju Founder & Chairman, Satyam Computers Ltd.

B. Rama Raju Promoter & CEO, Satyam Computers Ltd.

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SATYAM PROFILE

Satyam Computer Services Ltd was founded in 1987 by B.Ramalinga Raju to provide services in IT sector and was promoted by the two brothers B. Rama Raju and B. Ramalinga Raju. A leading global business and information technology company delivering, consulting, systems integration, and outsourcing solutions to clients in over 20 industries. The company offers information technology (IT) services spanning various sectors, and is listed on Bombay Stock Exchange, National Stock Exchange, the New York Stock Exchange and Euro next(Amsterdam). On 26th August, 1991 it was converted into a Public Limited Company and went for PUBLIC ISSUE in 1992. BSE IPO oversubscribed 17 times when made public. Its network covers 67 countries across six continents and it has its Headquarter at Hyderabad. The company employs 40,000 IT professionals across development centers in India(Hyderabad, Bangalore, Chennai, Pune, Mumbai, Nagpur, Delhi, Kolkata, Bhubaneswar, and Visakhapatnam), the United States, the United Kingdom, the United Arab Emirates, Canada, Hungary, Singapore, Malaysia, China, Japan, Egypt and Australia. It serves over 654 global companies, 185 of which are Fortune 500 corporations and has strategic technology and marketing alliances with over 50 companies.

 Achievements of the company:  It is the first IT Company in the World Certified under ISO9001:2000  It is ranked among India s Top 10 Best Employers (2004 and 2003).  It comes in Top 13 Best-Managed Companies in India.  It has won SAP Pinnacle Award 2008.  India's fourth-largest software services exporter, Satyam Computer Services received a Golden Peacock Global Award from a group of Indian directors for excellence in corporate governance on Global Level for 2nd time.  United Kingdom Trade and Investment India Business Award for Corporate Social Responsibility and transparency. During the year 1996 company promoted 4 subsidiaries:  Satyam Renaissance Consulting Ltd.  Satyam Enterprise Solutions Pvt. Ltd.  Satyam Info way Pvt. Ltd (e-commerce) and  Satyam Spark Solutions Pvt. Ltd. (software's) Providing internet in India:  In the year 1999, Satyam Info way Ltd, became the second largest Internet services provider in India based on the number of customers.  Satyam Info way (sify) is the first Indian Internet company listed on NASDAQ.  The Company launched its shopping channel as (www.sifymall.com).  In 2001, The American depositary shares (ADS) of Satyam Computer Services on May 16 was listed at .16 $ on the New York Stock Exchange (NYSE) at a premium of 14.9 per cent to the offer price.  During 2002, Satyam Computer Launched operations in China. Industry presence: Satyam provides services in the following areas:- Aerospace and Defence and Travel, Logistics & Industrial Equipment, Energy and Utilities, Life Sciences & Healthcare, Banking, Financial Services & Insurance, Manufacturing, Chemicals & Automotive, Public Services & Education, Retail and Consumer Packaged, Telecom, Infrastructure, Media and Entertainment & Semiconductor

SATYAM CLIENTS

STRUCTURE OF THE BOARD

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SATYAM SHARE HOLDING PATTERN

Shareholding Pattern as on 31st March 2008

19.46% 10.58% 8.74% 61.22% Institutional Shareholders Non-Institutional Shareholders Custodians Promoters

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CONTROVERSIES SURROUNDING SATYAM COMPUTERS LTD.

1. MAYTAS ACQUISITION

 Raju s hold 36.64 per cent while institutional holding is 10.92 per cent  The company had raised Rs 327.45 crore through IPO.  It had a turnover of Rs 1,660 crore and net profit of Rs 100 crore in the last financial year.  Satyam planned to acquire 51 per cent stake for Rs 1, 440 crore or $0.3 billion.

   

Raju s family owns 35% stake of Maytas properties Founded in 2005, it has a land bank of 6,800 acres It has clearances for three IT SEZs based on 148 acres An undisclosed stake is held by Infinite India Investment Management, a realty fund jointly promoted by JM Financial and US-based SRM Investments, which invested Rs 600 crore in February. The deal was to be financed by Satyam s surplus cash. Satyam s share prices fell reflecting share holders disbelief. Later on, Valuation of Maytas turned out to be fraudulent. Raju raised cash & siphoned off funds used to buy several thousands of acres of land across AP through several benami accounts and this helped Maytas in getting major contract. He was siphoning the money from Satyam to Maytas since last 6 years. With Satyam in deep cash crunch, Raju wanted to buy Maytas to cover up Satyam s inflated cash.
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Satyam s justification for Maytas buyout deal

 De-risk the core business  The integrated organization would be stronger and more diversified to deal with the uncertainty of the market.  He had a feeling that in the recent times it is difficult to make a strategic deal with other IT companies.

Reaction of Investors

 The shareholders realised that the buyout was not profitable for them. Satyam using the reserve cash to purchase Maytas Infra and Maytas Properties was a big risk.

Result of Investor s Reaction

 The result of investors reaction was that part of investors succeeded to thwart the buyout attempt by the minority-shareholding promoters who thought of using the firm s cash reserves to buy two companies already indirectly owned by them Maytas Properties and Maytas Infra.  The aborted attempt towards expansion precipitated a collapse in the price of the company s stock and also led to the shocking confession of financial manipulation and fraud from its chairman, B. Ramalinga Raju.
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HOW DID IT ALL BEGIN??

TIME LINE

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2. Upaid Law suit

 UK mobile payments company Upaid Systems filed a case in the Texas court in 2007 of intellectual fraud and forgery against Satyam in 2007 i.e. Satyam provided forged documents to Upaid in patents filing that eventually resulted in the company losing its patents infringement case against telecom giants Qualcomm and Verizon.  On 9-December-2009 Satyam settled the lawsuit with UPAID for $70Mn, of which $45Mn was payable upon regulatory approval, and the remaining $25MM was payable a year after the initial payment.

3. World Bank
 The World Bank banned Satyam from doing business with it for 8 years due to inappropriate payments to the World Bank's staff. The World Bank accused Satyam of giving improper benefits to its (the Bank's) staff and of failing to maintain documentation to support fees charged for its subcontractors. However, it clarified that Satyam was not involved in incidences of data theft or malicious attacks that had been made on the Bank's information systems.
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What happened on 6th, 7th, 8th Jan 2009??

 DSP Merrill Lynch informed SEBI about Material irregularities in Accounts on 6th Jan  Minutes of Meeting of 16th December,2008 were not submitted to RoC (This created some doubts)  Company s previous Chairman B. Ramalinga Raju resigned after notifying board members and the Securities and Exchange Board of India (SEBI) assured that Satyam's accounts had been falsified.  Hearing of Upaid- satyam case on 8th Jan at the US court.

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7 January The Turning Point ..

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Fabricated Income Statements Creative Account Practice

4. Accounting scandal of 2009 finally exposed

 The fraud has brought to light the fact that in India the distinction between owners and management is still not very clear i.e. the owners can also be the managers.  Satyam is the biggest fraud in India's corporate history.  The company management, mainly disgraced chairman B Ramalinga Raju, kept everyone -- seemingly -- in the dark for a decade and tarnished shining India's image horribly, is as stupefying a fact as the Rs 7,800 crore (Rs 78 billion) scam itself.  The company's account books said that Satyam had over Rs 5,000 crore billion (Rs 50 billion) in the bank, when it did not. Raju said that he had been fudging the account books for 'several years' and despite this no one but he, and his brother, knew of this.
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Raju Confessions
-Raju confessed that Satyam's balance sheet of 30 September 2008 contained:  Inflated(non existent) figures for cash and bank balances of Rs 5,040 crores (as against Rs 5,361 crore reflected in the books).  An accrued interest of Rs. 376 crore which was non-existent.  An understated liability of Rs 1,230 crore on account of funds was arranged by himself.  An overstated debtors' position of Rs 490 crore (as against Rs 2,651 crore in the books).  For the second Quarter Satyam reported a revenue of Rs 2,700 crore and an Operating Margin of Rs 649 crore (24% of revenues)  As against the actual revenues of Rs 2,112 crore and an Operating Margin of Rs 61 crore (3% of revenues)  This has resulted in a artificial bank and cash balance going up by Rs 588 crore in Q2 zone. -Details of cash balances with Scheduled banks are not there in the Annual report. -Question raised by Equity analyst Kawaljeet Saluja -$500 mn cash parked in current account.

Why confession??
Recession drained the liquidity to run the show Out standings were piling up Since listed in US, SEC rigors would take over Unmanageable gap between actual and book profit It was like riding a tiger, not knowing how to get off without being eatenRaju Ramalinga while admitting the fraud.  Every attempt made to fill the gap failed. As the promoters held a small percentage of equity, the concern was that poor performance would result in a take-over, thus exposing the gap.  The aborted Maytas deal was the last attempt to fill the fictious assets with real ones bt that also was unsuccessful.     

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 On Wikipedia, for the first time, India has been put on to the list of largest corporate scandals in the world, all thanks to Satyam a blogger.  If the first fraud is for Rs100, the next time add another zero. It (accounting fraud grows exponentially Anil Roy, Grant Thornton India.

Overstated cash balances, Income receivables.

Understated Liabilities

Fraud Amount

TECHNIQUE SATYAM USED

Investment in Real estate (Land Banks)

To keep EPS high

Sold his stake at inflated price (Made Rs.2,065 cr from shares)
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Fake FD receipts and Employee Nos.

Take FD receipt The money has already vanished Tell to Banks FD receipt is Lost

At the end show the original FD receipts

Ask for Duplicate Receipts

Park the Money in other Bank

Use the Duplicate to Withdraw money

PARALLEL FINANCE DEPARTMENT??

Mr. Raju

PWC Auditors

RamaKrishna VP Finance

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STOCK CHARTING

*Sensex stock index dropped by 7.3% and Satyam shares fell by nearly 78%. 24

COMPARISON SATYAM AND MAYTAS SHARE PRICES

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PARTNERS & OTHER COMPANY BIGWIGS IN CRIME

 The Satyam board, including its five independent directors had approved the founder's proposal to buy 51 per cent stake in Maytas Infrastructure and all of Maytas Properties, owned by the family members of Satyam chairman B Ramalinga Raju.  Despite the shareholders not being taken into confidence, the directors went ahead with the management's decision.  The decision of acquisition was, however, reversed 12 hours later after investors dumped Satyam's stock and threatened action against the management.  Satyam's chief financial officer Srinivas Vadlamani was remanded to Judicial Custody till January 23 by the 6th Metropolitan Magistrate on sunday. He has even admitted to signing on the dotted line , saying he never really paid much attention to the balance sheet! But could only two or three people have managed to cook the books for years of a company so large?. It is quite likely that some other top managers in the company too were in the know of what was happening but chose to keep quiet.
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Here the role of auditors started i.e. the role of PRICEWATER COOPERS started .
 So what were the auditors, PricewaterhouseCoopers, doing? There was no cash with in the company's banks and yet the auditors went ahead and signed on the balance sheets saying that the money was there.  Not just the cash, even they even signed off on the non-existent interest that accrued on the non-existent cash balance!  The company officials said they relied on data from the reputed auditors.

PWC had been auditing satyam s balance sheet since year 2000. Companies have to keep bank statements for the current and preceding years at registered offices. It is suspected that the files vanished as they would have given away the fraud. Credibility of PWC???... amount too big to be noticed PWC: our audit in accordance with the auditing standards generally accepted in India Satyam's financial statements are the responsibilities of the company's management under Satyam s management controls over financial reporting and auditing Audit reports between June 2000 to September 2008 unreliable
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LAWSUITS FILED AGAINST SATYAM IN US

 About a dozen lawsuits have been filed against Satyam Computer in US courts, charging the Indian IT firm with duping thousands of American investors out of billions of dollars.  Asked about the specific damages sought in the lawsuit, law firm Vianale & Vianale LLP's counsel Keneth J Vianale said that the sum duped could be in hundreds of millions of dollars.  Vianale said in an emailed statement to PTI: "We have not alleged a specific damages amount that we are seeking. That will be a subject of expert testimony.  "However, in cases of this sort, it is not unusual for the damages to be in the hundreds of millions of dollars."  Another law firm Pomerantz Haudek Block Grossman & Gross said that it "has commenced an investigation of the scandal on behalf of investor clients, and is exploring the possible claims that can be raised, including under the federal securities laws . . .  ". . .and focusing on identification of possible defendants in addition to the Raju brothers, such as outside auditors, and on the location of assets in this country."  After the scandal was revealed, trading in Satyam shares was halted by the NYSE on January 7 and the stock exchange has said that it is assessing whether the firm deserves to stay on the bourses.  The trading could be resumed on Monday if its review is satisfactory, the exchange said in a statement.  In these lawsuits, Satyam Computer has been charged with duping thousands of American investors by artificially inflating share price.  While two lawsuits were filed on January 7, the day when Satyam's founder-chairman Ramalinga Raju resigned after disclosing massive financial irregularities to the tune of over a billion dollar, so far there has been nearly a dozen lawsuits that have been filed against the company.  Earlier, nearly six law firms including Brodsky & Smith LLC, Glancy Binkow & Goldberg LLP, Harwood Feffer LLP, Sarraf Gentile LLP, Vianale & Vianale LLP and Izard Nobel LLP had filed class action law suits against Satyam Computer.
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VIEWS AND EFFECTS OF THE SCAM?? VIEWS

1. WHAT WENT WRONG??
Manipulation of Softwares, Lack of Audit Controls, Systemic Reviews, Insider Training

2. THE SEBI
 The Securities and Exchange Board of India, which says it is 'horrified at the magnitude of the fraud' had in December given a clean chit to Satyam saying that it had not found any violation of norms relating to takeover and corporate governance in its preliminary surveillance of the deal involving the acquisition of Maytas Infra by Satyam Computer Services.  Thus there was no need for a formal investigation. Therefore, the probe would be limited to the deal between the two listed entities -- Satyam and Mayta Infra -- and not cover the one involving Satyam and unlisted firm Maytas Properties.  Analysts say the market watchdog lacks the teeth for ensuring compliance on governance. Now, after so much water has flown under the bridge, SEBI has moved to 'take action' against the company.

3. THE BANKERS
 The company's bankers -- and it has a whole bunch of them, considering it is a huge company -- too have been shown in poor light.  Satyam's books showed cash to the tune of over Rs 5,300 crore (Rs 53 billion) in its banks.  Satyam's banks -- ICICI Bank, HDFC Bank, Bank of Baroda, etc -- were supposed to provide bank statements on a quarterly basis and bank certificates on basis of which auditors go ahead and signed the balance sheet.
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4. DEPENDENT and INDEPENDENT DIRECTORS

 The role of the company's directors, including independent directors, in  

 

the entire episode too has been exposed after the Satyam episode. Most of them essentially remain 'nodders' in the boardroom and agree to whatever the management or the promoters want to push through. The Satyam board, including its five independent directors had approved the founder's proposal to buy 51 per cent stake in Maytas Infrastructure and all of Maytas Properties, owned by the family members of Satyam chairman B Ramalinga Raju. Despite the shareholders not being taken into confidence, the directors went ahead with the management's decision. The decision of acquisition was, however, reversed 12 hours later after investors dumped Satyam's stock and threatened action against the management.

5. INVESTMENT BANKERS
 Investment banker DSP Merrill Lynch was appointed by Satyam to look  

 

for a partner or buyer for the company a fortnight ago. We now know that DSP Merrill terminated its engagement with the company soon after it found financial irregularities. Merrill Lynch is also understood to have sent the information and the reason for their termination of the contract to the Bombay Stock Exchange, Sebi and even the New York Stock Exchange, on which Satyam is listed. However, despite the fact that DSP Merrill Lynch blew the whistle, it is not yet clear why it took such a long time to inform the authorities, and why it did not let the public know of Satyam's misdeeds. DSP Merrill has not yet answered these questions. Yet in the whole shady affair, DSP Merrill comes out the best party as it was finally because of its move that Raju was forced to quit.

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6. SHAREHOLDERS AND THE MEDIA

 Sometimes activism just does not help.  When Raju sought to push through the Maytas deal without taking shareholders into confidence, he was faced with huge protests.  The media, keen to help the underdog, too joined in the protest.  Raju was forced to cancel the deal.  In hindsight, it appears that it would have perhaps saved Satyam if the deal had been allowed to go through, as Satyam would have been able to use Maytas's assets to shore up its own books.  Raju, who showed artificial cash on his books, had planned to use this 'non-existent cash' to acquire the two Maytas (which is Satyam spelled in reverse) companies.  Since the Rajus held more than 36 percent stake in Maytas, it would have been easy to push through the deal, at least from that side.  But with the shareholders and the media queering the pitch, the deal fell through and now so has Satyam.

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7. RAJU BROTHERs spends time in jail like Ordinary Prisioner

 The government, on its part, was perhaps too busy projecting the stellar show of the Indian IT sector and did not find it necessary to launch an enquiry into these 'complaints,' so to speak. Thus by way of negligence the government too is equally guilty in not having managed to save the shareholders, the employees and some clients of the company from losing heavily.  Satyam s case was fought by advocate Bharat Kumar. But he lost the case and The Founder of Satyam Computer, B Ramalinga Raju, who lived like a 'king' before admitting fudging of company accounts to the tune of Rs 7,800 crore (Rs 78 billion), slept on the floor of the Chanchalguda Central Prison here like other ordinary prisoners and later on Srinivas Vadlamani was also shifted there.  According to sources, the Raju brothers have been given the status of 'C' class prisoners or undertrials. They had to sleep on a mat on the ground like all other prisoners and were offered the usual prison dinner of rice and rasam, which the elder Raju refused, sources said.  January 10 and is now spending most of his time in the jail by reading books and is keeping himself abreast with latest developments through newspapers.

 Some ardent followers of B Ramalinga Raju and some employees of Maytas are invoking the Almighty to come to the aid of the beleaguered IT strongman.  These fans conducted a prayer and havan service to help the disgraced former chairman of Satyam Computer Services obtain bail.  The prayers are being held so that Raju comes out of this entire episode unscathed.
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8. RAM MYNAMPATI CEO OF SATYAM

 A prime prospect for probe by regulators and authorities investigating the Satyam fraud, acting-CEO Ram Mynampati appears to be the IT company's most valued asset and drew a salary more than that of founder Ramalinga Raju and all the directors put together.  At the same time, its independent directors, many of whom have quit Satyam board after the Maytas fiasco on December 16, got at least Rs 1 lakh (Rs 100,000) a month as commission and sitting fees.  Mynampati, who is now being questioned by the team of market regulator SEBI, got a total package of over Rs 3.5 crore (Rs 35 million) during the year ended March 2008, while founder and Chairman had to contend with just about one fifth.  A perusal of company documents reveals all the directors, except Mynampati, got a total of Rs 2.6 crore (Rs 26 million) as salary, commissions, sitting fees, professional fees and other receivables.  What is surprising is the difference between the package of Mynampati and all the others put together is about Rs 1 crore (Rs 10 million), almost the same that the second best package that was given to independent Satyam director Krisha G Palepu.  After Mynampati the package for Ramalinga Raju totals Rs 60.4 lakh (Rs 6.04 million), followed by his brother Rama Raju at Rs 44.07 lakh (Rs 4.40 million).  The company paid a total of Rs 1.56 crore (Rs 15.6 million) to its seven non-executive directors.  Other than V P Rama Rao, who was on the Satyam Board for just about a month, independent directors got between Rs 12 lakh to Rs 13.2 lakh (Rs 1.2-1.32 million) a year.  Harvard Business School professor Palepu bucked the trend and got Rs 91.91 lakh (Rs 9.19 million) for 2007-08, which includes a professional fees of Rs 79.51 lakh (Rs 7.95 million).
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9. OVER HALF A MILLION PEOPLE have STAKE IN SATYAM SURVIVAL K.V. KAMATH, M.D. , ICICI BANK
 The big question on survival of Satyam Computer is giving anxious

  

moments not only to its over 50,000 employees but also to over half-amillion people, who would get impacted indirectly if the IT firm does not come out of the trouble, Confederation of Indian Industry president K V Kamath said on Saturday. Kamath said each of over 50,000 Satyam employees supports a family of four. "Every white collar job creates four another jobs. (So) you are talking about anything between half-a-million to a million people, who could directly or indirectly have been impacted by this single event," Kamath said. He said the crisis had such a social magnitude that made the government act swiftly and save the company. Besides CII, Assocham and Ficci have also welcomed disbanding of the Satyam board of directors by the government. They expressed hope that the move would help restore investor confidence not only in Satyam but in corporate India in general.

10. Andra Pradesh Govt. involved in the Scam

 Andhra Pradesh government was in no way involved in the massive

accounting fraud at Satyam Computer, State Finance Minister K Roasaih has said.  "The State government has nothing to do with the Satyam Computer issue. The Centre was looking into the issue," he told reporters in Vijayawada.  The minister was responding to Opposition parties' charge that the Congress government was involved in the scandal at the Hyderabadbased software firm.  "Instead of giving suggestions how to revive Satyam Computer and protect the interest of its 53,000 employees, Opposition parties were making baseless allegations against the government," Roasaih said.

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 The '108' emergency services in the state, currently maintained by EMRI

Satyam Group Trust, would not be affected in wake of the financial fraud, he said.  Many philanthropists and organisations are coming forward to support and run the emergency services (which can be availed by dialing 108), the minister added.

11. Govt. plans Rs 2000-crore package for Satyam

 The Indian Government has decided to take direct action to looking at a

salary bailout for the 53,000 Satyam Computer Services employees.  A Rs 2,000 crore package is under consideration to ensure that Satyam employees get their salary on time after it the new board said that they are looking for funds.  The government is looking at giving three instalments of Rs 500 crore to Satyam for the next three months and is planning another infusion of about Rs 400 crore.

12. Satyam s Market Price Can Not Be Used For Valuation Of Satyam
 Asserting that only action could determine the sale price for Satyam,

Modi said that stock market price could not be considered a benchmark in this case, as the market was not fully aware about the firm s actual assets and liabilities.  Even the board is not aware (about the assets and liabilities), so the market is working on the available information. So, I don t think there could be any basis of reserve price, Modi added.

13. No advance tax paid by Satyam in FY09

 Satyam Computer has not paid a single rupee as advance tax in the first

three quarters of the current fiscal, though the IT company paid Rs 25 cr as fringe benefit tax (FBT) till December 15.  As payment of advance tax is always considered an indicator of profitability of a company, Satyam s non-payment of advance tax could also imply that trouble had been brewing for a long time.
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EFFECTS
1. WORRIED INVESTERS EXIT PwC CLIENTS
 Investors brought shares of other companies in the same sector  Out of 100 clients of PwC, most companies share fell by 5-15%.  Risk of Reputation
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2. GOVT. should protect WORRIED SATYAM EMPLOYEES

The Bharatiya Janata Party asked the Centre and Andhra Pradesh government to take steps to protect the interests of 53,000 employees and investors of the scam-hit Satyam Computer. "The government of India and Andhra Pradesh government should take all steps to protect the interests of investors and the company's employees," senior BJP leader Venkaiah Naidu said on the sidelines of the BJP's Youth Rally in Chennai.
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3. ICAI asks PwC to EXPLAIN SATYAM ACCOUNT

 Chartered accountants body ICAI served a showcause notice on

  

auditor PriceWaterhouse and asked it to submit balance sheets of Satyam Computer audited by it in the last five years. "We today served showcause notice on PriceWaterhouse and asked it to reply within 21 days," Institute of Chartered Accountants of Indiap resident Ved Jain told PTI. If the reply to the notice does not come by 21 days, all members of PriceWaterhouse who audited the Saytam accounts could be banned for life time, Jain said. The firm has also been asked to submit balance sheets, financial statements and other relevant documents of Satyam Computer audited by it for the last five years, he said. The audit firm has maintained that it followed applicable audit standards and went by audit evidence provided by the company. The ICAI president said action against CAs, who audited the accounts of Satyam Computer, can be expected in 2-3 months, if found guilty. Jain said Satyam founder Ramalinga Raju's statement that only he knew about the financial wrong-doings did not look like the whole truth, as he did not write the accounts of his company. Ramalinga Raju in a letter written to the company board admitted, "...None of the board members, past or present, had any knowledge of the situation in which the company is placed." Chartered accountants body ICAI on Saturday served a showcause notice on auditor PriceWaterhouse and asked it to submit balance sheets of Satyam Computer audited by it in the last five years.

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4. RESTRUCTURING PROCESS
 The Government decided to appoint nominee-directors. The new board will take a decision on a new management team.  Satyam's three-member board constituted by the government had been appointed as a management advisor met for the first time on Monday to discuss ways to revive IT company SATYAM.  Eminent banker Deepak Parekh, IT expert Kiran Karnik and former Sebi member C Achuthan arrived at the Infocity campus of Satyam in Hyderabad for the meeting, in which the chairman of the board is expected to be elected.

Deepak Parekh Kiran Karnik C. Achutan Former HDFC Chairman Former NASSCOM Chairman Former SEBI Member  Satyam board has appointed GOLDMAN SACHS & AVENDUS as its Investment Bankers.  Companies and government are closely watching Satyam strategies. They feel that satyam should stand of its own first, if not then only other company s would approach for a takeover/acquisition of satyam.  Other IT company like HCL is also considering a possibility of the takeover and keeping a watch on satyam moves.  But at last the TECH MAHINDRA has take over the satyam and in june 2009 it s to new name MAHINDRA SATYAM .

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5. IMPACT On INDIA INC.

 Questions have been raised on the balance sheets of other IT Companies

and the role of auditors.  Investors loosing faith in major IT firms and other major Corporate due to fraud arisen out of Mr. Raju s confession.  Due to the satyam turbulence, 70 independent directors of various companies including ZeeNews, TVS Motors, BHEL etc, had quit from satyam and resigned from there respective companies.  SEBI has made mandatory for the promoters of the companies to disclose details of the shares pledged by them.

6. NASSCOM advices against poaching Satyam s Clients

 While welcoming the reconstitution of the scam-tainted Satyam board,

the Nasscom chairman Ganesh Natrajan said the apex body had advised its members to desist from making "unsolicited offers" to the customers of the beleagured company, which has earned the dubious reputation of being 'India's Enron'.  The IT industry in the country was "mature" enough to resist such undesirable practices and poaching on the customer base of Satyam, whose business continuity needs to be ensured, he told PTI.  The government had taken the right steps in the matter and Nasscom was hopeful that new board with proven track record of its directors would restore credibility of Satyam taking care of the liquidity aspect and uninterrupted business schedules, Natrajan said.  It was important to ensure that in the outsourcing, customers did not lose their faith in Indian companies, he stressed.

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7. No Delay in SATYAM PROBE

 The government said that there was no delay in acting against the tainted

founder of Satyam, B Ramalinga Raju.  "There would be no laxity against the guilty... So let us not talk about any individual or the auditors (PwC) of the company," Minister for Corporate Affairs Prem Chand Gupta told reporters when asked what action would be taken against Raju and auditors.  "We are very clear and a co-ordinated action would be taken," he said.  The apex body of accounting firms Institutes of Chartered Accountants in India has sought some information from the auditors of the company and Financial Reporting Review Board, the minister said, adding that they can ask for working papers of the audit and that has already happened. "Once that (the papers) is received, ICAI will take its view," he added.

8. Prioritized Plan Of Action

      

Restore cash flow to secure Financial Stability. Customer retention and infuse confidence to continue. Employee motivation and Management restructure. Legal advisors In India and USA appointed. Internal audit entrusted to an external firm. Management Consultants and Board Advisors appointed. Forensic investigation to facilitate restatement of accounts initiated.

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IN THE NEWS

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THIS CASE LED TO??

CHANGES IN REGULATION
SEBI now allows certain changes or exemptions in the takeover code in case of a company in crisis. This helps the investors in the stocks of a company like Satyam Case in point the value of Satyam shares was only19 rupees after the revelation However, six month share price average of share was 270 275 rupees per share SEBI requires at least half of the directors in the boards of publicly held companies to be independent. SEBI prohibits insider trading and has in place a strong mechanism against it . They keep track of the following:  Details of acquisition of 5% or more shares in a listed company  Details of shares held by Director or officer of a Listed company  Details of change in shareholding in respect of persons holding more than 5% shares in a listed company  Details of change in shareholding of Director or Officer of a Listed Company Compulsorily appoint external auditors to do internal audits These auditors are also allowed to restate the profits if required Mandatory for companies to disclose the percentage of promoter shareholding that is encumbered.

TRAINING
National Institute of Securities Market, an initiative of SEBI trains professionals in internal auditing. This programme aims at helping the audit professionals to carry out an effective internal audit of the broker s books in order to satisfy the requirements of Sebi and the exchanges. Ensures compliance with the provisions of the Sebi Act, 1992, Securities Contracts (Regulation) Act, 1956, SEBI (Stock brokers and Sub- brokers) Regulations, 1992, circulars issued by SEBI.

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SOME ADDITIONAL MEASURES

Requirement of professional qualifications/financial literacy for Chief Financial Officer (CFO) Rotation of Audit firms / partners Appointment of an external audit firm as internal auditor of the company Modification in formats of limited review report and statutory auditor s report Voluntary adoption of International Financial Reporting Standards (IFRS) by listed entities having subsidiaries Interim disclosure of balance sheet items by listed entities Timelines for submission of financial results by listed entities.

SWOT ANALYSIS
STRENGTHS
   

WEAKNESS
   

World class infrastructure Leadership and talent pool Premium Customers Low debts

Tainted image Class action suits Silos management structure Third party claims

THREAT
   

OPPORTUNITY
 Pledge assets to raise funds

Investigating agencies Media Revenue deptt New tendering BGs, Solvency Certificates & Audited statements

from banks  Persuade clients to pay up  Create change on receivables to continue existing debts.

For about 15 weeks there was no owner in control

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SCENARIO AFTER THE SCAM

Two critical options
 Continue to run the Business, clean up and restate the accounts, re-audit, enable valuation, due-diligence and offer for take over; or  Immediately identify a strategic investor who will infuse capital and take over control & management  Chose the second option after due deliberation  Investment Bankers appointed, Bidding process set in motion with Former Chief Justice of India as Observer  SEBI and CLB were moved for appropriate relaxations

Bidding process
   
Press release on 9th March inviting registration RFP was sent to 141 registered- only 10 submitted EOI Out of 10, 7 met the criteria and were sent documents for execution 5 submitted documents but later 2 withdrew for want of internal approvals leaving 3 in race  Thus, WL Ross; L&T and Tech Mahindra competed  Information had to be given to Bidders to facilitate quoting price per share for preferential allotmen

Strategic Investor Selection

 Virtual and Physical data room created and access provided  Site inspection of 2 main campuses arranged  Management presentation made for each bidder exclusively show casing the facts and potentials  Conference call slots were given to clarify on legal matters and again on financials separately  One meeting between each of the bidders and the Government nominated board on 3rd April  Technical and Financial bids received on 13th April and highest bidder Tech Mahindra selected and The Prime Minister Mr. Manmohan Singh appreciated the company.

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CONCLUSION
It is a collective failure of directors, auditors and regulatory agencies in ensuring transparency and accountability; As a consequence of this fiasco, the overseas client may take a hard look at most Indian outsourcing companies and investment flows could be hit. The responsibility for preventing fraudulent activities lies with the Board of directors. Their acts and conduct impact the reputation of India and, therefore, they must ensure that the highest standards of corporate governance are set. The Quality Review Board ('QRB'), an independent body set up under the MCA, is looking into the standards of audit for chartered accountancy firms with a view to redefine new stringent norms for audit firms. It may ask the SEBI and MCA to mandate listed companies to rotate their auditors to prevent Satyamtype frauds - practice being followed in public sector companies. There is a need of time to take the investigation procedure in effective and efficient way to clear every issue and make it sure that such incident will not happen again in future, it is necessary to solve the above questions and to fill the gaps of the loopholes. We also wish that the company stands once again whooping investors not with the false promises but in accordance with its name that is TRUTHFULNESS. Quickly put the issues behind us and ensure continuity of our operations and our services delivered to our customers. Do everything that we can as an organisation to ensure the stakeholders Restore confidence of the customers employees, suppliers and investors by ensuring business continuity. There are legal provisions in other countries to deal with Corporate Fraud such as FOREIGN CORRUPT PRACTICES ACT OF 1977, THE SARBANES-OXLEY ACT OF 2002, etc. and so should we have to avoid such frauds.

FACTORs that contribute to the FRAUD

Greed-Ethical values given a go by Executive incentives Stock market expectations Nature of accounting rules Audit failures- Internal & External Aggressiveness of investment banks, commercial banks, rating agencies and investors  Weak Independent directors and Audit committee  Whistle blower policy not being effective

     

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How did the scam happen?

       
Ambitious growth drive Audit failure- example., External confirmations of Bank balances not properly done Deceptive reporting practices lack of transparency ESOPs issued to those who prepared fake bills Excessive interest in maintaining stock prices High risk deals that went sour Above all, greed and lack of Ethical values

Corporate lessons to be learnt

         
Rotation of audit firm vs rotation of audit partner Strengthening of Quality review (Peer review) Joint Auditors to audit companies beyond a size Internal audit of Financials by an external firm with undiminished scope Composition of Board and quality and qualification of Independent directors Audit Committee meetings - adequacy of notice and adequacy of duration Criteria for remuneration to Key Personnel Effective whistle blower policy in place Focus on Intangibles & Tangibles follow Education on Ethical values

Moral lessons for Recapitulation

        
Humility helps while Ego hurts Distinguish between opportunities and temptations Build quality teams and enable succession Adapt with technology/knowledge changes but stay static on fundamentals Listen to your head in complying with law and to your heart in dealing with people Many good things done get washed away in one bad conduct To live beyond your age- Love people and use wealth Ability may take you to the top but it takes Character to stay there Nothing is impossible, if attempted with nobility

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BIBLOGRAPHY and REFRENCES

http://en.wikipedia.org/wiki/Information_technology http://www.rediff.com/money/2008/jul/17sd1.htm http://www.livemint.com/2009/01/07214335/Truth-aboutSatyam-rise-and-f.html http://knowledge.wharton.upenn.edu/india/article.cfm?articlei d=4344 http://www.thehindubusinessline.com/2009/01/14/stories/200 9011450020800.htm http://www.satyamscam.info/ http://satyamscam.in/2009/03/govt-to-provide-help-to-cbi-insatyam-scam-case/ http://www.blonnet.com/2009/01/12/stories/20090112511306 00.htm http://www.blonnet.com MAGAZINE NEWS PAPER

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