Satyam's Foul Play

HOW SATYAM FELL


JANUARY 7, 2009 | Rewind to Wednesday, when Satyam's chairman Ramalinga Raju quit after confessing to cooking his company's books for years. By the time markets closed that afternoon, Satyam had plunged 78%. This will end Satyam's saga of dodgy deals, political hobnobbing and shabby treatment of shareholders for over 10 years. Yet throughout, state politicians supported the company, state-owned finance companies turned a blind eye to its activities and a spineless board nodded off on everything. Satyam was rewarded with great valuations, a place on the Bombay Stock Exchange's Sensex A-list, and awards for entrepreneurial success, management skills and — ho-hum — corporate governance. MAYTAS DEAL | Weeks before he quit, Raju triggered investor fury by trying to use Satyam's fictitious cash to acquire two companies owned by his family. Investor anger eventually got him to back off.

WORLD BANK BAN | A few months before Maytas, the World Bank, whose IT network was managed by Satyam, banned it for eight years: the Bank found that spyware installed in its finance and HR software was transmitting every tap and click back to Satyam's operations in Chennai. Shortly before this, Upaid Systems, a US software company specializing in online payments for mobile phone companies which had outsourced work to Satyam, sued it. It alleged that Satyam's performance was shoddy, it had inserted a Raju relative on board, stolen patented ideas and sold those to two telecom companies.

IN 2000 , Satyam bought a clutch of websites called Indiaworld for $116 million. Divide the buying price by 400 and you’ll get the site’s revenues, divide it by 2,000 and you’ll get its profit at the time of acquisition. No shareholder ever saw the gains from this costly investment.

POWERFUL FRIENDS | By then Raju had a powerful friend, Andhra Pradesh CM Chandrababu Naidu. The alliance may have helped prop up Satyam’s domestic equity prices. T R Prasad, a babu who retired as Cabinet secretary, was on Satyam's board. As industry secretary in the hotch-potch government of the late 1990s, Prasad had plotted with his minister to grab control of Maruti from Suzuki. He failed. The day Satyam imploded, Maruti was one of the few stocks to close up
 
Its a big game played by the CEO and the other parties of the organisation.. I am sure its not Mr raju the only person to be blamed for ..I guess he is used as a scam goat..lot many hands into this play.. lot many politicians in the scandal.. Did u people listen to what the cheif minister of Andhra pradesh told the reuters?
Raju was my friend!!!
So he accepts that he knows him.. Now since raju s caught he says raju waas my friend..
 
Satyam now represents a big story just opposite to what its name mean..

what i feel is that...this incident is a question mark to teh system as a whole..its not important what Raju had done...more important thing is that he had done all this frauds and inspite of having stringent rules and regulations..all these went unnoticed.


Its time to really reveiw the system prevalent....Moreover this is also a lesson for the investor mostly speculators in the market who goes about brand name without properly scanning teh company...henceforth investors wil think and judge well before going to invest in any share..
 
Simply shocking...
on the part of a company as big as Satyam.
I just dont believe the fact that its chairman Mr. Ramalinga Raju alone is responsible for this scandal and that none of its board members were even aware of it goin on..!!!!
 
Deepak i particularly dint like the blog u have posted as a CA i can understand what those reports mean coz i have prepared dozens i think u really need to Understand that while an audit is conduted the auditor does not proceed to conduct an audit with a possiblity of a fraud in mind coz if he does that the whole purpose of verifyin the Fairness and accuracy gets defeated as he will have to look into each and every transaction which is clearly not feasible and also not desirable plus "Sufficient & Appropriate Audit Evidences" do not mean that they represent the complete picture the auditor generally places 3rd party confirmations ona higher pedestal than the interna mgt representations to place reliablity and this is what has happened these very 3rd party confirmations have been forged u can read ET dated 14jan09 and may be then u can understand my point although i m not from PWC but as a CA i needed to explain all this
 
Deepak i particularly dint like the blog u have posted as a CA i can understand what those reports mean coz i have prepared dozens i think u really need to Understand that while an audit is conduted the auditor does not proceed to conduct an audit with a possiblity of a fraud in mind coz if he does that the whole purpose of verifyin the Fairness and accuracy gets defeated as he will have to look into each and every transaction which is clearly not feasible and also not desirable

plus "Sufficient & Appropriate Audit Evidences" do not mean that they represent the complete picture the auditor generally places 3rd party confirmations ona higher pedestal than the interna mgt representations to place reliablity and this is what has happened these very 3rd party confirmations have been forged u can read ET dated 14jan09 and may be then u can understand my point

Although i m not from PWC but as a CA i needed to explain all this
 
Mr Ramalinga Raju is to be blamed for the fiasco mainly, though Auditors, Independent Directors and regulators can not escape from their responsibilities.

About 4-5 yrs back,Satyam was No 4 largest I T Company in India behind TCS, Infosys and WIPRO. In last 4-5 years, TCS, Infosys and WIPRO have grown exponentially but satyam could not catch up with the pace. Raju, in his zeal to retain No 4 position, resorted to fraud. This is the main reason. Secondly, lot of money has been diverted by raju to acquire land through out Andhra pradesh.This triggered cash crunch. Ultimately, the man fell victim to his own greed and in the process, he brought down entire Industry, India as a Investment destination,millions of small investors and India's image world wide.As a punishment, Raju may languish in jail for 10-12 yrs and pay a fine of Rs 25-50 crores. But will the lost image and reputation of India Inc be salvaged??? it is a long drawn battle.We all should be prepared. Worst nightmare is how many more Satyam-like frauds are covered behind the doors?
 
hi frnds i think this satyam contorversy hav very broad spectrum which includes PWC and some other banking firms.
 
Akash Prakash: India's Enron
The Satyam saga will go down as the worst episode of corporate governance failure in India
Akash Prakash / New Delhi January 9, 2009, 0:35 IST
The saga of Satyam Computers will go down as the worst episode of corporate governance failure in corporate India. The fraud which is in excess of Rs 7,000 crore, is unfortunately of a truly global scale. Post the aborted merger with Maytas, many had suspected that Ramalinga Raju and family were heavily leveraged at a personal level, stuck in property and thus needed a bail-out. Nobody, however, I think suspected that Satyam itself was a fraud, with no cash and a non-existent margin structure. Raju’s letter implies that the company is basically unprofitable at a net level, and made no money over the last few years. How can Satyam, with 50,000 employees and global scale, make no money at all, when even mid-tier mediocre IT companies make atleast 10 per cent operating margins? How can this fraud be going on for years? How can the auditors not have confirmed cash balances, and that too of Rs 5,000 crore? Cash is supposed to be real, profit an accounting fiction, but here the cash itself was fraudulent. Raju goes on to state that he was going to merge Maytas Infra and his privately-held property company to bail out Satyam, and not use Satyam’s cash to bail himself out (as assumed by most who opposed the merger). Raju also writes that he pledged all his shares to raise cash to pump into Satyam, to keep the charade going.
While the truth will eventually come out, I still find it difficult to believe that Satyam actually makes no money, even though the revenues, clients and employees are real. How is it that a company with a scale of 50,000 employees, which pays employees industry standard wages and has billing rates comparable to industry standards, makes no money when TCS, Infosys and Wipro make 25-30 per cent operating margins? Even mid-tier companies with only 5,000 employees make 10-15 per cent margins. If Satyam really makes no money, what accounts for the margin leakage? Where are its costs out of line? Is money being sucked out of the company? Was Raju really willing to shortchange himself and family to bail out a company in which he had no more then an 8 per cent stake (as he claims he wanted to do by merging Maytas)? I suspect Raju’s letter may not be the last word in this saga.
While this sad episode will obviously raise doubts on India Inc and have damaged the country’s reputation, I do not believe the damage is permanent. Tragic episodes like this do happen, and this in no way dampens the IT or India growth story. Every boom/bust cycle invariably exposes weak players and Satyam will not be the last fraud we see in this country. The shock is, however, magnified both due to the scale and because it has claimed a top 5 player in the IT sector, a sector which has been the poster child of a more progressive and investor friendly corporate India.
Post Enron in the US, we saw a slew of regulations culminating in the Sarbanes-Oxley Act. In India, we have by and large adequate laws and disclosure standards, though we can improve disclosure in areas like promoters-pledged shares or detailing the bank accounts where the company’s cash is parked. Our framework of a majority of independent directors, minimum frequency of board meetings, shareholder approval needed for major decisions etc is of global standards. We also force our CEO and CFO to certify the accuracy of the published accounts. We can tinker with new disclosures but it is unlikely to make much difference. Satyam after all reported its results in Indian GAAP, IFRS and US GAAP, and even gave audited half-yearly statements. With a US listing it was also under the jurisdiction of the SEC, but none of this made any difference.
We now need to ensure that the guilty are brought to book and we see a swift and coordinated regulatory response. In the case of Enron in the US, the guilty were tried within three years — we cannot allow a 20-year litigation cycle (like the 1992 scam) in this case. We must quickly investigate, find out the truth, and then move against all the actors in this fraud. The company and Raju cannot have single-handedly pulled off a fraud of this magnitude and duration. Bankers, auditors and the finance function in Satyam will all be involved in some form or fashion. At the least they can be accused of incompetence. Investigation and action must be directed at all these service providers. It is especially critical that the sanctity of the independent audit process be maintained. The CA institute has to tighten standards and move against proven incompetence.
The only way to win back investor confidence is for justice to be done quickly and the punishment be severe enough to instil fear and disincentivise corporate fraud. In the case of Enron both the company and its auditors (Arthur Anderson)went out of business.
The ultimate defence against poor governance is the market itself. It was well-known that Satyam had a suspiciously high and growing current account balance, as well as nearly Rs 400 crore interest accrued but not received on deposits. Why will a company keep Rs 2,000 crore in a current account? Why will the bank not credit interest to a deposit for multiple quarters? While investors can legitimitely claim that they were relying on a Price Waterhouse-signed balance sheet, one of the lessons of the sub-prime debacle is that investors cannot rely blindly on external service providers.
Investors should exercise proper due diligence, and not allocate capital to companies with poor disclosure or governance practices. Investors cannot allow large companies to have unknown auditors, or rubber-stamp boards and must force them to split the CEO/chairman role in substance. If investors refuse to back poor managements, you will see large valuation gaps for companies in the same industries. If poor governance attracts poor valuations, it will incentivise shareholder-friendly behaviour and marginalize companies with weak corporate governance. Investor memory also cannot be short, poor governance has to attract a permanent de-rating.
This episode should further galvanise shareholder activism in India, with the HIRCO and GACL episodes being the first signs of greater shareholder organization and participation. We must see a greater market for corporate control in India. Investors must be willing to throw out poorly performing managements and boards, especially in companies where institutional investors have a higher stake than the erstwhile promoter group. Only when poor governance practices lead to poor valuations and hence vulnerability to takeover, will the economic incentives be aligned to prevent a recurrence of Satyam.
 
Satyam, the fourth largest Indian IT company, with an employee strength of around 53,000 people, could have had a better story to tell, had not the promoters indulged into accounting malpractices and financial manipulations.
Is this how the Corporate india works????????????????
 
I think its high time ICAI brings in the policy or Auditors Rotation in Listed companies also like it is done in Banks.

Thanks,

Manoj
 
what you guys have to say about the employemet that students got in that company,
salaries in thousands.
who will not try to make money given a chance. every1 is greedy by some or the other way people try to maximize their profits its in a process smtimes they cross limit.
raja is atleast better than our politicians who waste our crores of rupees daily.
think abt our politicians ...........action need to be taken against them
 
I Agree with Parul Here we must not forget that before Anythin n Everythin Satyam was one Global Giant which stood apart from its Peers and perhaps and u know what it was awarded for its Training inititiaves for employees and the organisers said tht the award was unfazed by the ongoing controversy and morever even the rating agencies which awarded satyam the Golden Peacock Award for Corpoarate Governance all were at fault
Its just that until n unless the goose gives the golden egg everyones running behind it and now it has some disease everybody wants to curse it
Cmon guys suggest somethin u can think of to revive the company maybe somebody will take note lets b creative and shell out some suggestions ..

Cheers!!!!
 
The best part to see in days to come will be how this saga changes the India Corporate Scenario & India's Position in World Economy especially IT clients
 
You must log in or register to reply here.
Back
Top