The most controversial and biggest corporate and accounting fraud of 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.
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 thriving place. The Satyam got listed in 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.
The 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 in 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 Satyam Scam.
- It discovered over 7500 fake invoices in the Satyam scam.
- The Satyam reported the fictitious revenue of around Rs.5300 crore between the period of April 2002 to September 2008
- CBI found Rs. 899 crore fake interest income recorded in the books of the Satyam
- Fake Foreign Exchange Gain of Rs. 206 crore 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 of the 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 lakh, invested Rs. 90 crore 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 founder and promoter of the Company, sold their holdings at higher prices and profited nearly Rs. 1200 crore
- The brothers were adjusting and modifying the books, and bank statements in their favour
- The PWC, who were auditors of the Satyam, failed terribly in their job and to verify invoices and bank statements.
- There was very little cash with the Company as most of the money and bank balances in the balance sheet of the Satyam were fictitious.
- The Raju brothers decided to invest in Family-controlled Maytas to fill the gap, but the 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 Rs accounts. 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.”
The CBI took over the case of Satyam Scam and arrested Raju Brothers. The court ordered imprisonment for Raju Brothers and PWC auditors with a considerable amount of penalty.
After the Satyam Scam is revealed, the Government appointed a board to sell the Satyam computer services; Tech Mahindra purchased a significant 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 bring in a series of measures to improve corporate governance.
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