Satyam employee commits suicide fearing job loss

 Apparently fearing that he may lose his job, a 23-year-old employee of scam-ravaged Satyam Computers allegedly committed suicide here, police said. Vishwa Venkatesan, hailing from Salem, yesterday consumed poison.

He was referred to the General Hospital where he died, they said. Fear of losing his job drove him to take the extreme step, they said.

Venkatesan had earlier also made similar attempts after the scam broke out early this month but was saved due to the timely action, police added.

Govt, SEBI seek access to Raju

The government will move court in day or two to seek permission to interrogate Satyam's former chairman B. Ramalinga Raju, now lodged in Hyderabad's Chanchalguda Jail, as lack of access to him appears to have slowed down investigations into the country's biggest corporate fraud. "We'll be moving court, most likely by tomorrow, to seek permission to interrogate Raju," corporate affairs minister P.C. Gupta told Hindustan Times on Thursday, shortly after nominating three new members on the board of Satyam.

Separately, capital markets regulator Securities and Exchange Board of India (SEBI) too is seeking permission to interrogate Raju. While the ministry of company affairs will question Raju on violations of the Companies Act, SEBI's probe will focus on insider trading and market manipulation.

"We're in touch with each other and working together on this," said a senior SEBI official. On Wednesday, SEBI's lawyer Pradyumana Kumar Reddy said Raju's judicial custody was delaying the probe.

"Whatever is required by the company will be done," Gupta said while announcing the new directors. "But no financial assistance has been sought by the management so far.

" The three new directors are Tarun Das, chief mentor of industry body Confederation of Indian Industry; T.N. Manoharan, former president of the Institute of Chartered Accountants of India; Suryakant Balkrishna Mainak of Life Insurance Corporation of India, which has a stake of over 4 per cent in Satyam. They will join HDFC chairman Deepak Parekh, IT industry veteran Kiran Karnik and legal expert C. Achutan to make a six-member board, which will meet on Saturday.

Raju has been taken into judicial custody till January 23. The government has handed over the probe into the Rs 7,000 crore scam to Serious Fraud Investigation Office, a multidisciplinary agency empowered to investigate major economic offences that have substantial regulatory and public interest.

Satyam's loss could be TCS' gain

One company’s misfortune might well be another’s opportunity. It is widely believed that many scam-hit IT firm Satyam Computer’s clients will migrate to competitors such as Infosys, Tata Consultancy Services (TCS) and Wipro, over a period of time.

According to a recent Edelweiss Capital report, TCS is likely to garner maximum revenue from Satyam Computer’s pie as it has the highest client overlap with the latter. Infosys, it says, would perhaps gain less than Wipro, given its lower client overlap and greater selectivity.

Up to 40% of Satyam’ revenue pie can get redistributed among other players (i.e. up to $1 billion) on an annualised run-rate basis by the end of the quarter of the current fiscal, the report says.

“Given the gradual exit patterns, this may be effectively $500-600 million of actual outflow through the year (as not all of this gets out in the beginning itself, nor do all contracts exit upfront),” says the report.

The broking house is of the view that all large IT services majors would not gain to the same extent as a lot depends on the pricing discipline as well as the overlap of their strengths and clients with those of Satyam. “It feels that Infosys may prefer to stay away from those contracts that it believes will dilute the quality of revenues,” the report said.

There are very few clients who have exclusive vendor-relations with Indian IT companies. Of Satyam’s revenues coming up for re-negotiation from clients having multi-vendor relationships (that is having project tie-ups with other Indian firms), there is greater probability of 50% of such contracts going the other vendors’ way as switching costs are lower and comfort is higher, the report adds.

For example, Citibank and GM are clients of both Wipro and Satyam. It is likely that these relationships will significantly shift in favour of Wipro. About 25% of Satyam’s exclusive clients (one vendor client) are likely to shift to newer vendors, says the report. Among top Indian IT vendors, TCS is well-placed to garner maximum revenue pie (nearly $115 million in FY10, or 2% of FY09 revenues).


Wipro and Infosys follow behind with around $95 million and $80 million, respectively, (also within 2-2.5% of their FY09 IT-services revenues), notes the report. Cognizant, according to the Edelweiss report, could benefit relatively less given its limited strength in Satyam’s mainstay — ERP, manufacturing and presence in emerging markets.

HCL may not be a beneficiary as its entrenchment in ERP is relatively low, it adds. Besides, clients are more responsive to corporate governance issues putting Infosys, TCS and Wipro at relative advantage among Indian players, says the domestic broking house.

Outcome of the Board Meeting

A very good evening to all of you.

We have concluded the preliminary discussions of the first meeting of the Board constituted by the Central Government, today.

The top priority of the board is to restore confidence of the customers, employees, suppliers and investors by ensuring business continuity.

An issue of this enormity would need careful consideration and extended meaningful reviews, before it is resolved. We will, however, attempt to give you an overview. It is important to recognize though, that the Board may not be in a position to communicate the details on many issues, at this juncture. We will try and answers some of the questions that may be uppermost in all our minds, today.

Left to Right: C Achuthan, Deepak S Parekh, Kiran Karnik

The government is going to appoint a few more Board members soon, immediately after which the full board will decide the appointment of the Chairman.

Given the enormity of the issue and the urgent attention required, the Board will have to meet frequently for the next few months.

We are in the process of appointing an independent accounting firm within the next 48 hours to restate the financial and announce the Q3 results.

In the past few hours that we have been here, we have been impressed by the commitment of the officers that we have met. Many Satyamites have reached out reaffirming their commitment to the company and their desire to see Satyam reach greater heights. The associates are definitely of high quality and they have shown tremendous resilience and commitment, amidst all the adversity that they have been subjected to. We are told that they have united and rallied to get Satyam out of this crisis. We feel assured that they will show the same determination to deliver high quality work as per SLAs, and help restore the glory for this organization.

We are also impressed with all the marquee customers that Satyam has, which reads like the who is who of the global corporations. We like to assure Satyam’s customers that our immediate priority is to ensure sustainability of services with minimal disruption. The government is keen to do everything possible to quickly get the organization on its feet and conduct business as usual.

Working capital issues require immediate attention and we will work with the team to tide over this situation.

Thank you for joining us today. We will convene soon and update you on further developments

Satyam Got New Board of Directors

New Board of Directors Appointed at Satyam

Satyam Computer Services Limited (NYSE: SAY) today said that it welcomes the Ministry of Corporate Affairs’ appointment of three distinguished members to a newly formed board of directors for the company.

The members are:

*
Mr. Deepak S. Parekh, Chairman of HDFC

*
Mr. Kiran Karnik, former President of NASSCOM

*
Mr. C. Achuthan, Director at the National Stock Exchange, former Member of SEBI, and former Chairman of Securities Appellate Tribunal.

“Satyam welcomes this key development, which will ensure the company’s continued operations, help maintain customer confidence and associate morale, and restore investor trust. The new members are eminent and accomplished leaders, recognized in India and around the world for their expertise in finance, law, administration and the IT services industry. Satyam’s leadership team has complete confidence in them, and pledges to work closely and in full cooperation with the new board,” the company said.
The board is expected to meet within the next 24 hours.
“This is a vital stabilizing development for Satyam, and it marks the beginning of a new chapter in the company’s history. It is the best news we’ve received in the past four weeks,” a company spokesperson added.

Satyam Scam and helpless Indian government!

When the Madoff fraud, one of the largest scams in Wall Street history, broke out, the US administration moved with lightning speed. Bernard L. Madoff, the founder of Bernard L. Madoff Investment Securities, accused of committing a $50 billion fraud on its clients, was arrested within hours of the scam unfolding on December 11, 2008 and later released on a $10 million bail. The assets of his investment firm were frozen the very next day. A federal court launched the prosecution proceedings forthwith and ordered liquidation of Madoff’s business. A receiver was appointed to manage the firm’s financial affairs. To protect the interests of cheated investors, the court directed the clients to seek relief under a federal statute created for the purpose. If convicted, Madoff could face up to 20 years in prison and a maximum fine of $5 million.

Look at the way India is dealing with its biggest corporate fraud committed by Satyam honcho Ramalinga Raju. He has simply gone underground after confessing himself to the Rs8,000 crore fraud. None knows about his whereabouts. And no attempt seems to be under way to trace him even two days after he dropped the bombshell. The Hyderabad police say they have no complaint to proceed against Raju. All that the Andhra Pradesh Chief Minister Rajasekhar Reddy did was to appeal for the intervention of the Prime Minister, who, in turn, responded to his Chief Minister’s plea with a stoic silence!

The government ’s response to the unfolding of the Satyam scam has been muted. It appeared to be totally clueless about what to do in the aftermath of the Satyam scam. The 52-year-old Companies Act doesn’t have any provisions that enable the government to take swift and effective action in cases of large scale fraud.

The Serious Fraud Investigating Office(sorry, I am hearing about this high-sounding office only now), to which the Satyam scam is being referred by the Government, says it could take up to a year or longer to complete the probe into the Satyam fraud. Well, Madoff must be envious of the freedom and immunity enjoyed by Raju even after committing the mother of all corporate crimes in India.

`Satyam’ in Sanskrit means `truth’ . `Satyameva Jayate’(Truth alone triumphs) is the national motto of India.In the case of Satyam Computers, it took seven long years for the truth to triumph. It is not yet clear if the discredited Satyam chief Ramalinga Raju has said the whole truth or only the half truth about the financial fraud in his statement to the board of directors.

It is not the Rajus alone who concealed the truth from shareholders. Prima facie, the auditors and the directors too were a party to the blatant suppression of truth.It is quite unlikely that internal auditors were not in the know of the financial wrongdoings perpetrated in Satyam for years. Can the auditors merely wash their hands of saying the book of accounts is a primary responsibility of the management and auditors merely audit the documents provided to them by the management. The auditors need to explain what process they adopted in authenticating the inflated profits and fictitious assets referred to by Raju. If Satyam’s auditor PwC is a willing accomplice in the scam, it is a shame on India’s chartered accounting profession as a whole.

How can it be that none of the board members, past or present, had any knowledge of the actual state of affairs in Satyam? Was the Company Secretary, who is supposed to act as an advisor to the board, too unaware of the developments? If he was aware, what advice did he give to the board?It is hard to believe that India’s fourth largest IT Company gave a complete goby to ethics, corporate governance and transparency by falsifying the company balance sheet, considered the most sacrosanct document of a corporate entity.

If 26/11 was the result of total failure of intelligence, Satyam fraud was in no less measure the result of the collapse of the corporate surveillance machinery. What were auditing regulators like the Institute of Chartered Accountants of India (ICAI) and the Institute of Company Secretaries of India (ICSI), as also the Ministry of Corporate Affairs, doing to bring about checks and balances in company auditing.

According to the Companies Act, auditors are to be appointed by shareholders at the companies’ AGM, but in most cases the shareholders are not even aware who their auditors are because they are appointed by the management. Most management is hesitant to share sufficient data with the investors so much so the investors don’t have a clear idea of the ground realities.

After the Satyam scam, the shareholders will tend to take the company balance sheets only with a large helping of salt.

SHOULD SATYAM'S EMPLOYEES BE DEBARRED FROM IT INDUSTRY?

Recently a few well known IT companies have decide not to hire present employees of Satyam. There are few thousand of fresh graduates who have been given appointment letters by Satyam but not yet given the date of joining. They are still waiting to be called. Perhaps all of them would have to forget about their career in Satyam for the new board will hardly be able to absorb any more additional manpower without setting the house in order.So in all practical reasons these young graduates having appointment letter would miss the bus of getting the promised job in Satyam without any fault of them. If these fresh engineers are denied employment by other big IT companies now, would it not create a social upheaval?

It is true that IT companies primary function is to run their companies efficiently. The companies are not responsible to manage the social upheaval. But in case all satyam's employees are debarred from employment to keep away from the allegation of poaching of employees ,by others, it would be sad story of denial of employment to deserving people. Is not it true?.

It is true that IT companies are not under any obligation to hire employees in case work do not demand it. But in case there are opportunities to employ qualified experience staff why people should be banned simply because they were employees of a tainted company?

I am sure when intelligent and dedicated employees would like to shift out it may be possible that they would not demand higher compensations. Some one should ask the intending employees of satyam ,who would like to shift out, whether 20% salary cut would be acceptable to them or not?

Let us hope for the best and prepare those IT experts for the worst. Let us ask them whether they are willing to join large reputed IT companies with less compensation than their present job or not? Or would they like to accept a salary cut in Satyam itself?

Another important question needs to be answered is that how fair IT companies are to debar or deny employment to a vast pool of competent human resource simply because they once worked in a taint anted company. Is it correct for large IT companies to keep them away in the premises that Satyam should be allowed to revive with their present employees only? I invoke the reaction of all the intelligent right thinking professionals in this regards.

Review about Satyam Fraud

'Satyam' means 'Truth' and its an irony that the day Satyam Founder Ramalinga Raju came out with the truth of alleged multi crore scam he being part of for years as regards company's financies, everything came crashing down: be it Satyam stock price (languishing now at 23 odd rupees) or employees and shareholders trust in the company (and of course most significantly their equity portfolio came crashing down as the company plunged into uncertainity and bleak future) .

One can really hold true the fact that it takes decades to make a company but it only takes a moment to destroy it.Not only company, it has put on stake future of more than 50,000 thousand odd employees and millions of shareholders who invested for a safe , if not great future buying Satyam shares (and that too when world is going through severe financial crises) .Why are they facing serious consequences for something in which they were not associated in any way?This is what we called 'S(t)hock Market'.

Keeping investors, employees and whole world in dark concerning company's true financial health is no lesser a crime than what terrorists involved in 26/11 attacks were upto.7,800 crore scam is no less by any means and any punishment is less for such an unpardonable act.As i write this blog post, Mr.Raju along with his brother and CFO have been arrested by Andhra Police and have been booked under IPC 120b, 409, 420, 468 and 471 and also for falsification of records-these charges are nothing in comparision to betrayal to its employees , its investors and Indian business community as a whole.Time when India is being looked as the most favoured investment destination and Indian companies are acquiring companies all across the globe, such acts tarnishes the image of the whole country.Who will make amends for that?

Again in all this turmoil, 'aam aadmi' ,whether he is a Satyam employee or a Satyam shareholder or in some cases both (employees who have Satyam shares as ESoP's) are the sufferers.Its really a difficult task, if not impossible to find a suitable job in such financial meltdown and that too when your present company is engaged in such a serious fraud.Why this exploitation of common man and when will it end?

So who is responsible for all this? Surely blaming Raju or his brother or Satyam CFO is not enough.What were the other directors doing and how can they be so indifferent to kind of virtual money which was created? PwC is equally responsible and were surely taken into confidence while falsifying records and also if not, unable to detect irregularities of such a magnitude, they should be punished even more severely for their negligence and inefficiency .There must be much more political connections to it.Wherever corruption is there in the country, politicians got to be involved actively.Isn't it?

Sometimes its really beyond imagination why people really do such frauds? What really drives them to execute such acts? Maybe money, money and more money.What will he do of money when his own future looks all but in jeopardy ( not that i am too confident that he will get sentence he deserves in the next few days but for the simple fact that he completely ruined his ambitions on basis of which 'Satyam' once evolved in 1987) ? Whenever people will talk about Satyam in future,they will remember it as a 'fraud' company and not the one which had a potential to be India's No 1 IT Major or provided one of the best IT and ITE services .

Surely Satyam fiasco has tarnished image of Indian IT firms and FII's will think twice before investing in such stocks.Also there is not much hope from Indian judicial system which will take ages to frame the charges and give appropriate sentence.Surely i won't be surprised if his bail plea gets accepted sometime in future.Loopholes is judicial system will be utilized by Raju's lawyers to get him released on bail or in worst case minimise his sentence.

Whatever be the outcome of Satyam saga, it has already devestated lives of people who trusted the company and management the most.Where will you run Mr Raju from your conscience?Corruption is biggest menace crippling the nation and pulling it back everytime a hope of prosperous India evolves.It is high time that we all hold people responsible for their actions and punish them if involved in some wrongdoing.Time for some serious introspection!!!!

Sensex sheds 749 pts on Satyam fraud

Mumbai: The Bombay Stock Exchange benchmark Sensex on Wednesday suffered the most this year by losing 749 points on panic selling by funds after Satyam Computer said profit had been inflated for years, raising concerns of dim third-quarter earnings by blue-chip companies.

The Sensex, which had gained over 688 points in the last four sessions of 2009, tumbled below the crucial 10,000 point level, losing 749.05 points to reach 9,586.88. It touched the day's low of 9,510.15 and a high of 10,469.72 points, showing a wide fluctuation of nearly 960 points.

Satyam Computer crashed by Rs 139.15 or 77.69 per cent to close at Rs 39.95, after the Chairman announced the company had falsified accounts and assets for several years.

Amazingly, the company ADR on the US stock market -- Nasdaq -- closed higher by four per cent last night.

The declining Sensex recorded the biggest single-day loss in the past two months, after Satyam Computers Services, the country's fourth-largest software developer, plunged around 80 per cent, the highest since getting listed in 1992.

The 50-share National Stock Exchange index Nifty tumbled by 192.40 points at 2,920.40, after hitting the day's low of 2,888.20 points during the day.

Reliance Industries, with the highest weight in the Sensex, fell 12.52 per cent to Rs 1,196.80, the most since November 5. ICICI Bank, the second-largest lender, fell 10.53 per cent to Rs 468.05, the most since October 24.

With the market sentiment shattered, five of the 30 Sensex stocks were higher on selective buying. They were Infosys Technologies, Maruti Suzuki, Wipro, Grasim and Hindustan Unilever

Satyam scam: Jail for Raju, sent to judicial custody

One more top official of Satyam was on Saturday arrested and disgraced founder Ramalinga Raju and his brother Rama Raju were sent to judicial custody as the government and regulator SEBI huddled in Delhi to put a new management together to run the IT company.

Raju, who three days ago disclosed a financial fraud in the company running into thousands of crores over several years, and his brother were produced before the 6th Chief Metropolitan Magistrate who remanded them to judicial custody till January 23, their lawyer Bharat Kumar said.

The siblings will be treated as ‘C’ class prisoners vastly different from the luxury of their home in the posh Jubilee Hills and will be treated like other prisoners, jail officials said.

Vadlamani Srinivas, Satyam Computer's Chief Financial Officer, who resigned a day after the fraud came to light and which is yet to be accepted, was first picked up in the evening for questioning and was later formally placed under arrest, IG (CID) V S K Kaumudi said.

Srinivas has been arrested on the same charges that have been slapped on the Raju brothers--criminal conspiracy, cheating, use of forged documents, forgery and criminal breach of trust--under the Indian Penal Code, he said.

In Delhi, SEBI Chairman C B Bhave called on Corporate Affairs Minister Prem Chand Gupta to discuss coordinated action against Satyam - whose profits Raju admitted to inflating over the years - besides nominating new directors to the company's Board.

Gupta apprised Prime Minister Manmohan Singh on the developments. Andhra Pradesh Chief Minister Y S Rajasekhara Reddy too called Singh to update him on the Satyam front, which the government has said dented corporate India's image globally

Satyam to appeal against UK verdict in fraud case

Mumbai: Satyam Computer Services said on Thursday it plans to appeal in the United States against a UK appeals court verdict that went against it in a case of alleged fraud, forgery and intellectual property rights violation filed by a British firm, Upaid Systems.

News of the verdict sent Satyam’s shares tumbling 6 per cent, but the share recovered later to close at Rs 484.75, down 3 per cent. Satyam, the country’s fourth largest software exporter, plans to appeal in a federal court in Texas state after Upaid made headway on charges of misrepresentation and false claims on a product concerning electronic payments over mobile devices developed by the Hyderabad company.

"The US case is in a very preliminary stage and has to undergo the due process of law and Satyam is confident that it has merits in this case and would contest the case," Satyam’s chief financial officer Srinivas Vadlamani said in a statement, adding that it was too premature to measure potential damages.

"Satyam is considering its legal options as regards the dismissed appeal in the London courts," he said.

Satyam admitted that "extremely large sums of money" are involved and will proceed to a US trial in Texas. Upaid spokeswoman Joanne Hunter said in a statement that this is a very serious case of misconduct that involved fraud and forgery.

The root of the dispute goes back to 1997-98, when Satyam Enterprise Solutions, a subsidiary of Satyam Computer Services, was doing product development work with Intouch Technologies, which was later renamed Upaid Systems, to help it bring its products to the market soon.

Upaid Systems wanted to patent this product and asked Satyam to provide support as specified under their contract to Upaid to obtain the patent. Some of the then Satyam employees who worked on developing this product were also named as co-inventors in the patent credits.

However, the relationship between the two companies soured and in 2002, Satyam and Upaid concluded their relationship and based on the settlement agreement signed then, any future disputes were to be tried under UK laws. The concerned employees of Satyam have also since left the company.

In 2006, Upaid filed certain infringement claims against some companies in the US and says that during the proceedings it found out that work done by the two Satyam employees involved misrepresentation and forgery in some documents concerning the patent.

Satyam Scam Questions Corporate Governance

India’s government, its corporate sector and its people are stunned after the founder-chairman of one of the country’s largest information technology (IT) services companies admitted to years of falsified profits and an audacious financial fraud worth 1.5 billion dollars.

The founding promoter of Satyam Computer Services Limited, Ramalinga Raju, resigned as the company’s chairman on Wednesday, putting out a confessional statement admitting that roughly 1.5 billion US dollars (or the equivalent of 70 billion Indian rupees) of the firm’s past funds were "non-existent".

What has shocked analysts is that the money, that is now supposed to be fictitious, had been recorded in Satyam’s balance sheets and books of account that had been audited by the internationally reputed firm of auditors, PriceWaterhouseCoopers.

Raju, who is politically influential, disclosed details of the fraud in a resignation letter to the company’s board of directors forwarded to stock exchange authorities as well as the regulator of the country’s capital markets, the Securities and Exchange Board of India (SEBI).

Of the revenue reported as of Sep.30, 2008, the letter said, almost 1.03 billion dollars, or 95 percent, never existed.

SEBI’s chairman C.B. Bhave described the financial wrongdoing in Satyam as an event of "horrifying magnitude".

The scam has dominated the India media and what is ironical is that the Indian word "Satyam" translates as "truth".

A most alarming aspect of the episode was that Raju acknowledged that his company’s financial records had been fudged and manipulated for the "last several years".

"It was like riding a tiger, not knowing how to get off without being eaten," wrote the disgraced Raju in his letter.

While there were rumours that Raju had fled India, his lawyer has said he is in Hyderabad, the capital of the southern Indian state of Andhra Pradesh, where the Satyam is headquartered.

On Wednesday, Raju’s announcement had knocked the company’s stock down a crippling 78 percent and sent the sensitive index of the stock exchange at Mumbai, India’s financial capital, plummeting by a substantial 7.3 percent. The share price came down further on Friday.

This scandal came barely a week after the government in New Delhi announced an economic stimulus package to revive the markets that have been adversely impacted by the ongoing worldwide recession.

Until recently, Satyam used to be India’s fourth-largest IT company, specialising in developing computer software and business process outsourcing.

Satyam's stock is listed on the New York Stock Exchange, it had business operations in 66 countries and counted 185 companies in the Fortune 500 list as its clients and customers.

"It’s a wake-up call for the Indian corporate sector," said Ashok Kumar Bhattacharaya, national managing editor of Business Standard newspaper in an exclusive interview to IPS. "Companies have to stick to the rule-book," he added.

Investors, along with Indian government agencies, are now demanding answers to why the value of their stock came down by more than 1.9 billion dollars in one day on account of a scandal that is being described as "India’s Enron" in reference to the U.S. energy company that filed for bankruptcy in 2001, leaving 5,000 people jobless and eliminating one billion dollars in employee retirement funds.

Many of Satyam’s 53,000 employees are expecting unemployment as the dimensions of the scandal unfold, investors withdraw and it is discovered how the company’s coffers are almost empty. The 1.5 billion dollar fraud outweighs the company’s entire salary bill for the last year of a little over one billion dollars.

The downfall of Raju, a 54-year old software industry veteran, began nearly one month ago when Satyam attempted to acquire two companies controlled by his sons -- Maytas (Satyam spelled backwards) Properties and Maytas Infra -- for 1.6 billion dollars in order to compensate for the holes in his books of account.

The deal was abandoned 12 hours after it was announced when investors objected, claiming it was an irresponsible misuse of funds and an instance of nepotism.

The Maytas deals acted as a red flag for international investors, with a host of companies like Unpaid Systems of Britain accusing Satyam of fraud, forgery and breach of contract.

Shortly thereafter, on Dec. 23, the World Bank barred Satyam from offering its computer services for eight years citing a potential trail of corruption -- data theft and bribery -- that led to Raju.

The last straw perhaps came on Tuesday when an Indian associate of Merrill Lynch terminated an agreement on grounds of "material accounting irregularities".

Satyam’s worth estimated at seven billion dollars, barely six months ago, is now worth less thatn 330 million dollars.

In an IPS interview, Arun Kumar, professor of economics at New Delhi’s prestigious Jawaharlal Nehru University, said the so-called "independent" directors on the Satyam board were not truly independent and added that auditors often acted in collusion with corrupt company managers.

"I’m not at all surprised that the auditors played along with the top management of this company and allowed executives to cook books of account," said Kumar who has authored a book on India’s illegal -- or "black" -- economy.

"The government is not looking to take over the companies. The corporate world must respond to this," Kamal Nath, India’s industry and commerce minister was quoted as saying. "The government should only look at the regulatory part of it," he added.

The government has stepped in to investigate all important directors and employees associated with Satyam who could be involved in the fraud. All those found guilty could face up to ten years in prison. The auditing licences of the partners of PricewaterhouseCoopers could also be revoked.

"The system has to be strong, but individuals make the system. The rules were in place but individuals broke these rules and threatened the system,’’ says Bhattacharya.

Though Raju’s resignation letter attempts to accept personal responsibility for the misdemeanours, there is a view that many others were involved and complicit.

Kumar said it was "near-impossibile that those close to the inner workings of Satyam were completely unaware of what was going on".

Whereas some argue that the Satyam scandal will not have a long-term negative impact on the working of India’s reputed information technology (IT) industry, others say it could negatively impact India’s booming IT services which chalked up overall sales worth 52 billion dollars in 2007-2008.

Anand Mahindra, vice chairman and managing director of M&M, a leading commercial vehicles manufacturing company, went on record stating: "This development has resulted in incalculable and unjustifiable damage to Brand India and Brand IT in particular". He added that the "whole of Indian industry should not be tarred with the same brush".

But other corporate managers see positive fallouts to the Satyam episode. ‘’After what happened there is bound to better self-regulation among Indian IT companies,’’ said Puneet Kumar, a top manager at WIPRO, a globally respected, Bangalore-based IT company.

‘’Satyam was an aberration,’’ Puneet Kumar said. ‘’The fact is that the IT industry thrives on good reputation and every major in the business lays great emphasis on maintaining global standards of corporate governance.’’

Sensex ends 3.1% down, Satyam gains, Wipro falls

Sensex closed 296 points down at 9,110, as the low Asian markets weighed on the benchmark sentiments

The BSE benchmark, Sensex, continued to fall for the third straight session, on the heels of the Satyam debacle and the offloading by foreign funds.

The Sensex ended 296 points or 3.1% down at 9,110 and NSE Nifty ended 100 points or 3.4% down at 2,773 on Monday, as the low Asian markets weighed on the benchmark sentiments.

Sensex opened more than 122 points down in early trade and the 50-share NSE by 53 points down following the Satyam fraud and the weakening trends in the Asian markets and concerns around quarterly earnings.

Satyam shares climbed after the government appointed a three-member-board comprising Deepak Parekh, Kiran Karnik and C Achuthan. The company’s share price closed at Rs34.40, up 44.23% on the BSE.

Wipro shares fell more than 12% following news that the World Bank has barred it from direct contracts until 2011. It closed at Rs227.50 down by Rs23.55.

Shares of ONGC at Rs653, Reliance at Rs1,097, NTPC at Rs 170, TCS at Rs512, Infosys at RS1,159, ACC at Rs496, CBI at Rs 1,158 closed down on the BSE index.

Satyam scandal shocks Dalal St, key indices tank

The broader 50-share Nifty of National Stock Exchange also tumbled by 173.75 points, or 5.70 points, to end the week at 2,873


The New Year rally failed to last long and the key indices plunged by about 6.0% as the disclosure of the country’s biggest accounting scandal at Satyam Computer sent shivers down the spine of investors and crushed the impact of a second stimulus package.

On actual basis, the Bombay Stock Exchange 30-share barometer tumbled by 1,063.25 points, or 11%, from its intra-trade high of 10,469.72 to end the week at 9,406.47.It, however, registered a loss of 551.75 points, or 5.54%, from its last weekend’s close.

The broader 50-share Nifty of National Stock Exchange also tumbled by 173.75 points, or 5.70 points, to end the week at 2,873.00 from its previous weekend’s close of 3,046.75.

In a dramatic turn of event, the markets went into a tailspin and crashed by 749 points on Wednesday after India’s fourth largest software exporter admitted to its accounting manipulations, raising concerns over corporate governance issues.

The gravity of the stunning development could be gauged by the fall in share price of Satyam, which hit an all-time low on the BSE as well as the NSE. This also led to Satyam’s humble exit from the Sensex family as well as from the BSE IT and Teck indices, BSE-100, BSE-200 and BSE-500.

Satyam would be replaced by Sun Pharma in the Sensex and by Reliance Capital in Nifty from 12 January.

The mood, however, was upbeat in initial two days as the concerted efforts by the government and the Reserve Bank of India to boost growth pushed up the markets well above psychologically important 10,000-level.

The markets also bounced from its trading low of 9,250.82 on Friday after the inflation fell below 6.0% for the first time in ten months. Realty sector, too, was hit hard as it came under a fresh selling onslaught triggered by market perception that several realty companies do not adhere to strict corporate governance practices. DLF fell by 28%, HDIL by 27% and Unitech lost 23%.
Satyam fell to Rs11.50 per share, a loss of 86.57% over the week.

On 2 January, the RBI announced a cut in the repo rate and the reverse repo rate by 100 basis points each, and also slashed the Cash Reserve Ratio by 50 basis points to 5%. The government announced fiscal measures to support the slowing economy.

Barring the BSE-Auto index, which survived to land just in positive terrain, all other sectoral indices ended in the red with an average fall of 0.6% to 24.6%.

The BSE-Realty index was the top loser and crashed by 608.42 points or 24.61% to end the week at 1,864.09.

On the NSE, the S&P CNX Defty plunged by 114.70 points or 5.32% to 2,043.10 from preceding weekend’s close of 2,157.80.

Satyam Sued by Investors in Three U.S. Lawsuits Over Fraud

Satyam Computer Services Ltd. was sued by investors in at least three class-action lawsuits in federal court in the U.S. after its shares in Mumbai plunged to record lows when its chairman said he falsified accounts.

Hossein Momenzadeh, who bought 75 shares of the Indian software company’s American depositary receipts in July 2007 at $26.50 each, sued Jan. 8 on behalf of all purchasers of the ADRs from January 2004 to January 2009. Aekta Ben Patel, who bought 100 shares in July 2007 at $27 each, sued Jan. 7, the day Satyam Chairman Ramalinga Raju revealed the fraud.

“When the truth was revealed,” the ADRs “lost nearly their entire value,” Momenzadeh’s lawyers wrote in his complaint.

In a letter to directors, Raju said he falsified the accounts “for several years” and quit. The scandal has eroded $2.2 billion in shareholder wealth. Raju and his brother Rama were arrested yesterday and the remaining directors of the software exporter were fired, as India started investigating an alleged $1 billion fraud.

Melissa Baratta, a spokeswoman for Hyderabad-based Satyam in New York, declined to comment. “At this point we really can’t speak to anything beyond what the company has already made public,” she said.

The ADRs, each of which represents two ordinary Satyam shares, fell $8.42, or 90 percent, to 93 cents before the opening of the New York stock exchange Jan. 7, when trading was halted.

PricewaterhouseCoopers

An additional investor class action, or group lawsuit, was filed yesterday in federal court in San Jose, California, naming Satyam as well as auditor PricewaterhouseCoopers. David Nestor, a spokesman for the accounting firm, said he hadn’t seen the lawsuit and couldn’t comment on it.

Kenneth Vianale, one of Patel’s lawyers, said his firm was already investigating Satyam.

“We were gearing up to sue them before this news hit,” he said yesterday in a phone interview. “There was other stuff that caught our notice. They had a big stock-price drop in December.”

On Dec. 16, the ADRs fell a record 55 percent to $5.70 after shareholder objections led the company to scrap a plan to spend $1.6 billion buying two companies owned by Raju’s family.

The shareholders face difficulty recouping their investments, said Shaalu Mehra, the Menlo Park, California-based chairman of the law firm Perkins Coie’s outsourcing and India practices.

‘Kill Any Viability’

“The indications are that Satyam isn’t going to have sufficient cash reserves to make it to the end of the month,” Mehra said in a phone interview. “The mass departure of their customers is going to kill any viability that they had.”

Robert Harwood, one of Momenzadeh’s lawyers, said he’s been contacted by “a number of other people with some significant shareholdings” in Satyam. “They’re quite unhappy,” said Harwood, of Harwood Feffer in New York.

The New York cases are Patel v. Satyam Computer Services Ltd., 09-cv-93, and Momenzadeh v. Satyam Computer Services Ltd., 09-cv-161, U.S. District Court, Southern District of New York (Manhattan).

Govt dissolves Satyam board; Raju surrenders

Markets regulator says it would file a complaint only after completing its investigation; 5 more class action suits filed

India’s ministry of corporate affairs (MCA) moved decisively on Friday to address the fallout of the country’s biggest corporate fraud, the satyam scandal, and dissolved the company’s board, which was supposed to meet on Saturday, and said it would appoint 10 nominee directors on a new board that would meet within the next seven days.

A few hours after the ministry’s announcement, Satyam chairman B. Ramalinga Raju surrendered to the Andhra Pradesh police.

The ministry’s move means there will be no meeting of the company’s board on Saturday. Corporate affairs minister P.C. Gupta didn’t name the nominee directors on Friday, but it is likely that the board it puts in place will have a few bureaucrats, bankers and software industry heavyweights.

The announcement came even as no attempt was made to arrests Satyam Computer Services chairman, who on Wednesday shocked peers, analysts and investors with the admission of falsifying accounts to the tune of at least Rs7,136 crore.

The head of India’s stock market regulator Securities and Exchange Board of India (Sebi) said it would file a complaint against Raju only after completing its investigation.
Sebi also announced that companies that are part of the Bombay Stock Exchange’s Sensex index, the National Stock Exchange’s Nifty index, and some others would have to have their financial results reviewed by a committee appointed by the regulator.

Five more class action suits were filed on Day 3 of the Satyam scandal and the Indian Railways said it would likely cancel a contract it had awarded the software services firm.

MCA’s action came after the Company Law Board, the apex legal and regulatory body governing companies in India, allowed it to: restrain the current board from doing anything (it ceased to be the firm’s board at 6pm on Friday); pick 10 nominee directors; and hold a board meeting within seven days.

While television channel CNBC TV18 said the ministry would announce the new board later in the day, no announcement had been made till the time this paper went to press (see www.livemint.com for the latest updates on Satyam). Gupta, however, added that the government had no plan to take over the management of the company. He also said the Andhra Pradesh police were taking “necessary action” against Raju. Earlier in the day, several political parties had demanded that Raju be arrested immediately.

Satyam’s officials under regulators’ scanner

lawyers say chairman Raju and directors could be booked on several counts, face penalties and imprisonment

The management, promoters and independent directors of Satyam Computer Services Ltd could face punitive action, including imprisonment, fines and possibly attachment of personal assets and the company could also be banned from the stock markets in the wake of Wednesday’s confession by the firm’s chairman B. Ramalinga Raju that Satyam overstated its revenue and profits.

Experts also said that the company’s auditor, PricewaterhouseCoopers, could also face action, including a revocation of its licence to practise.

Regulators such as the ministry of corporate affairs (MCA), Institute of Charteretered accountants India (ICAI), Institute of Company Secretaries of India and the securities and Exchange Board of India (Sebi) are launching investigations against auditors, company secretaries, the chief financial officer and the chairman, managing director and independent directors of the firm.

While, Sebi has already ordered a probe into the case, MCA is gathering more evidence, including the extent of involvement, if any, of the independent directors.
Corporate lawyers maintain that Raju as well as directors could be booked on several counts.
“First, under the Companies Act, a director is supposed to act in the interest of the company. It is a fiduciary obligation and he can be punished for a breach of this obligation. Also, under the Securities Contract Regulation Act (legislation that checks undesirable securities) an offence can be made out. Even under the Indian Penal Code, there is clear offence of criminal breach of trust and cheating,” said Akil Hirani, managing partner at Mumbai-based law firm Majmudar and Co. He added that the independent directors would not be spared either. “Company law does not distinguish between independent and non-independent directors. The authorities will have to investigate the board meeting minutes and records. The onus will be on the directors to show they are innocent,” he said.

Somasekhar Sunderesan, securities law expert and partner at the Mumbai office of law firm J Sagar Associates, said that Raju’s letter admitting misappropriation could make for a clear case of cheating. “Anyone who buys shares, buys them on the basis of the data given by the company. There is a clear assumption that the information furnished is correct. If it is held that the disclosures are false, it is deemed to be a case of cheating.”

For violation of Sebi laws, Raju could face criminal prosecution leading to 10 years imprisonment and a fine of up to Rs25 crore. Sunderesan said Sebi could ban those responsible for fraud from participating in any capital market activities.

The new Companies Bill, pending in Parliament, also lays down that the offence for misleading investors is non-compoundable (which cannot be settled between two parties) and involves imprisonment and penalties depending on the gravity of the situation. Under the existing Companies Act, this is compoundable and penalties are much lower.
The new Bill, unlike the existing law, also has the provisions of class action suit, which investors can collectively file against the promoters.

The legal recourse currently available to share holders, according to Hirani, is that they can file a civil suit for damages or approach Sebi or MCA for “disgorgement” of profits.
Sunderesan added that Sebi is equipped with regulations to handle this situation, but said that the agency’s enforcement has to improve.

Some legal experts, however, said the independent directors may be spared. “Whole-time directors will certainly be booked while it’s very difficult to prove independent directors had a role to play in it (the fraud),” said Rajan Gupta, partner at FoxMandal Little.
Meanwhile Sebi chairman C.B. Bhave said that Satyam could also face charges in the US since it was listed on the New York stock exchange.

Officials at the SEBI, the stock market regulator in the US, could not be reached for comment.

According to Prem Chand Gupta, minister for corporate affairs, the government was awaiting Satyam’s response to queries raised by the Hyderabad office of the registrar of companies. The company has till Thursday to respond.

The case may also be referred to the serious fraud investigation office (SFIO), Gupta added. SFIO, which is part of MCA, is a multidisciplinary body to look into various kinds of corporate frauds, has experts from various fields, including corporate law, customs and revenue, banking accountancy. It has so far filed around 30 cases of corporate frauds since it started functioning in 2003.

“Action can be taken against Satyam’s chartered accountants, chief financial officer, internal auditors, etc. The punishment may range from cancellation of their CA certificates to imposing a lifetime ban on their practice and membership of ICAI,” said Ved Jain, president of ICAI.

RAMALINGA RAJU'S LETTER

To the Board of Directors
Satyam Computer Services Ltd.

From B. Ramalinga Raju,Chairman, Satyam Computer Services Ltd.

January 7, 2009

Dear Board Members,
It is with deep regret, and tremendous burden than I am carrying on my conscience, that I would like to bring the following facts to your notice:

1. The Balance Sheet carries as of September 30, 2008

a.Inflated (non-existent) cash and bank balances of Rs. 5,040 crore (as against Rs. 5361 crore reflected in the books)
b. An accrued interest of Rs. 376 crore which is non-existent
c. An understated liability of Rs. 1, 230 crore on account of funds arranged by me
d. An over stated debtors position of Rs. 490 crore (as against Rs. 2,651 reflected in the books)

2. For the September quarter (Q2) we 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 core and an actual operating margin of Rs. 61 crore (3% of revenues). This has resulted in artificial cash and bank balances going up by Rs. 588 crore in Q2 alone.

The gap in the Balance Sheet has arisen purely on account of inflated profits over a period of last several years (limited only to Satyam standalone, books of subsidiaries reflecting true performance). What 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 (annualized revenue run rate of Rs. 11, 276 crore in the September quarter, 2008 and official reserves of Rs. 8, 392 crore). The differential in the real profits and the one reflected in the books was further accentuated by the fact that the company had to carry additional resources and assets to justify higher level of operations—thereby significantly increasing the costs.

Every attempt made to eliminate the gap failed. As the promoters held a small percentage of equity, the concern was that poor performance would result in a take-over, thereby exposing the gap. It was like riding a tiger, not knowing how to get off without being eaten.

The aborted Maytas acquisition deal was the last attempt to fill the fictitious assets with real ones. Maytas’ investors were convinced that this is a good divestment opportunity and a strategic fit. Once Satyam’s problem was solved, it was hoped that Maytas’ payments can be delayed. But that was not to be. What followed in the last several days is common knowledge.

I would like the board to know:

1. That neither myself, nor the Managing Director (including our spouses) sold any shares in the last eight years — excepting for a small proportion declared and sold for philanthropic purposes.
2. That in the last two years a net amount of Rs. 1,230 crore was arranged to Satyam (not reflected in the books of Satyam) to keep the operations going by resorting to pledging all the promoter shares and raising funds from known sources by giving all kinds of assurances (Statement enclosed, only to the members of the board). Significant dividend payments, acquisitions, capital expenditure to provide for growth did not help matters. Every attempt was made to keep the wheel moving and to ensure prompt payment of salaries to the associates. The last straw was the selling of most of the pledged share by the lenders on account of margin triggers.
3. That neither me, nor the Managing Director took even one rupee/dollar from the company and have not benefitted in financial terms on account of the inflated results.
4. None of the board members, past or present, had any knowledge of the situation in which the company is placed. Even business leaders and senior executives in the company, such as, Ram Mynampati, Subu D, T.R. Anand, Keshab Panda, Virender Agarwal, A.S. Murthy, Hari T, SV Krishnan, Vijay Prasad, Manish Mehta, Murali V, Sriram Papani, Kiran Kavale, Joe Lagioia, Ravindra Penumetsa, Jayaraman and Prabhakar Gupta are unaware of the real situation as against the books of accounts. None of my or Managing Director’s immediate or extended family members has any idea about these issues.

Having put these facts before you, I leave it to the wisdom of the board to take the matters forward. However, I am also taking the liberty to recommend the following steps:

1. A Task Force has been formed in the last few days to address the situation arising out of the failed Maytas acquisition attempt. This consists of some of the most accomplished leaders of Satyam: Subu D, T.R. Anand, Keshab Panda and Virender Agarwal, representing business functions, and A.S. Murthy, Hari T and Murali V representing support functions. I suggest that Ram Mynampati be made the Chairman of this Task Force to immediately address some of the operational matters on hand. Ram can also act as an interim CEO reporting to the board.
2. Merrill Lynch can be entrusted with the task of quickly exploring some Merger opportunities.
3. You may have a ‘restatement of accounts’ prepared by the auditors in light of the facts that I have placed before you.

I have promoted and have been associated with Satyam for well over twenty years now. I have seen it grow from few people to 53,000 people, with 185 Fortune 500 companies as customers and operations in 66 countries. Satyam has established an excellent leadership and competency base at all levels. I sincerely apologize to all Satyamites and stakeholders, who have made Satyam a special organization, for the current situation. I am confident they will stand by the company in this hour of crisis.

In light of the above, I fervently appeal to the board to hold together to take some important steps. Mr. T.R. Prasad is well placed to mobilize support from the government at this crucial time. With the hope that members of the Task Force and the financial advisor, Merrill Lynch (now Bank of America) will stand by the company at this crucial hour, I am marking copies of this statement to them as well.

Under the circumstances, I am tendering my resignation as the chairman of Satyam and shall continue in this position only till such time the current board is expanded. My continuance is just to ensure enhancement of the board over the next several days or as early as possible.
I am now prepared to subject myself to the laws of the land and face consequences thereof.

(B. Ramalinga Raju)

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. However, most of its IT peers, including Infosys Technologies, Tata Consultancy Services (TCS), Wipro, Cognizant Technology Solution, Patni Computer Systems, Veritas Software, MphasiS, iGate Global Solutions, Cisco Systems and MindTree, have paid advance tax this fiscal, sources in finance ministry told SundayET.

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. Though IT companies get some tax benefits under Section 10 (A) of the I-T Act, Satyam’s zero payment of advance tax even as smaller companies coughed up the tax, has already raised questions in North Block.

Various government agencies, including Central Board of Direct Taxes (CBDT), have begun investigations into the Hyderabad-based company after its chairman and founder Ramalinga Raju stepped down after confessing a Rs 7,000-cr fraud. A source in the finance ministry has, however, said advance tax payment should be seen along with the company’s FBT and tax deducted at source (TDS) figures. “But yes, despite the slowdown, most IT companies have paid advance tax this fiscal whereas it’s zero in case of Satyam,” he added. Significantly, Satyam paid a meagre Rs 5.4 cr as advance tax last fiscal. Advance tax is paid four times a year and is paid on the basis of a company’s projection of annual net profit. SundayET did not receive Satyam’s TDS figures for the current fiscal. Satyam’s FBT payment in Q3 too was below expectation of taxmen as it paid just Rs 5.5 cr against Rs 25 cr during the same period last fiscal, indicating that the company began to cut cost on fringe benefits extended to its employees.

The total FBT collection as on December 17, 2008, stood at Rs 5,667 cr, registering a 43% rise from the same period in FY07, according to data available with CBDT.

Satyam’s 7 steps to save employees

I am at shock. Specially because Satyam employees with average salary of 70K per month are sure feeling helpless than I am at this time. Yet at the end of the day I think what can Satyam’s upcoming plan be? to increase the morale of it’s present employees and save them. Here are a few picks

1. Satyam and PwC may form a email marketing group called Satyam Pwc Advertisement and Marketing (SPAM) to pursue lenders through advanced email tactics in lending money.
2. Raju might provide free ebook version on budhdhism and spirituality to every employee through SAAS (Satyam Aesthetics and Advanced Spiritualism) model (who said? Dalai Lama??)
3. Satyam might ask employees to jointly produce films under bollywood banner to better the chances through box office, some films can be “Raju Bawra”, “amdani athanni, kharcha rupaya”, “EMI2 - kab du? kaise du?”, “satyam, shivam, scandalam”, “MAYTAS aapke hain kaun?” “Raaz 3 - Scandal continues..” come on…give me some titles..
4. Satyam might start body shopping employees with or can even create a career site for satyam employees like “topsatyamemployees.com” or “satyamcvs.com” or “satyamcareers.com”
5. Satyam might form a new ally with PwC and form SCAM (Satyam Creative Accounts Management) and might go for auditing other big giants of India, their average charge for audit will be 4.3 crores
6. PwC might create an awareness program to save its client Satyam (on demand by Raju). The campaign might be called “PWC - Please Wear Clothes”, which additionally means “just clothes” are allowed, employees should sale off their new SX4, Imate, Apple Mac and Handycams..
7. SATYAM might plea the government for saving them and defining the truth behind SATYAM as an acronym of “Some Accounts Tactically Yucked for Advanced Management”

Satyam Scam a reflection on Services Business ?

I am sure by now all of you know about the Satyam scam and how the companies management was involved in a massive $2 billion scam. But one of the most important thing which this complete scam has brought out is the dwindling margins on the IT Services Business. Satyam as per Raju only operated on a 3% margin. Now this 3% margin can be a reflection of the gross mis-management of Satyam or simply put bitter reality of the services business. Lets leave Infosys, Wipro & TCS aside as I believe that customers might be paying them a premium for who they are which is essentially translating to the high margin.

Satyam Scam - Separating truth from lies

The scam at Satyam Computer Services, the fourth largest company in India’s much showcased and fiscally pampered information technology (IT) industry, has had an unusual trajectory. It began with a successful effort on the part of investors to thwart an attempt by the minority-shareholding promoters to use the firm’s cash reserves to buy out two companies owned by them — Maytas Properties and Maytas Infra. That aborted attempt at expansion precipitated a collapse in the price of the company’s stock and a shocking confession of financial manipulation and fraud from its chairman, B. Ramalinga Raju.

What is ‘known’ as of now is that over an extended period of time, the promoters decided to inflate the revenue and profit figures of Satyam. In the event, the company has a huge hole in its balance sheet, consisting of non-existent assets and cash reserves that have been recorded and liabilities that are unrecorded. According to the ‘confessional’ statement of Mr. Raju, the balance sheet shortfall is more than Rs.7000 crore.

Why did a leading company in one of India’s most successful industries of recent years need to inflate profits? After all, the revenues of India’s IT industry have grown at a scorching compound annual rate of almost 30 per cent in the past eight years, driven by exports. This is remarkable, assuming that revenue and profit inflation have not excessively overstated performance. With cheap skilled labour having shored up profits that were lightly taxed when compared with the norm, net profits must have been substantial and rising too. Why then did the fourth largest IT company choose to take the criminal route of falsifying accounts and indulging in fraud?

One possible cause could be the desire to drive up stock values. The benefits derived by promoters from high stock values are obvious, allowing them to buy into real wealth outside the company and giving them the ‘invasion money’ to acquire large stakes in other firms. This tendency was epitomised by the benefits derived by America Online when it merged with Time Warner. Although the latter had more assets, revenues, and customers, AOL’s higher market capitalisation led to that company and its chairman, Steve Case, getting more out of the deal than did long-time giant Time Warner.
There is some suspicion that Mr. Raju and his family may have sought similar benefits. The family chose to build its shareholding in Satyam Computer Services and shed it when required. For example, in year 2000 Satyam Computer merged with a related company, Satyam Enterprises. Raju’s cousin, C. Srinivasa Raju, who held 800,000 shares, or 19 per cent, in Satyam Enterprises, was reportedly allotted an equivalent number in Satyam Computer, leading to criticism that relative prices did not justify the 1:1 swap.

But the original promoter’s share held by the Raju family and their subsequent acquisitions were not for keeping. Though the precise numbers quoted vary, according to observers the stake of the promoters fell sharply after 2001 when they held 25.60 per cent of equity in the company. This fell to 22.26 per cent by the end of March, 2002, 20.74 per cent in 2003, 17.35 per cent in 2004, 15.67 per cent in 2005, 14.02 per cent in 2006, 8.79 in 2007, 8.65 at the end of September 2008, and 5.13 per cent in January 2009 (Business Line, January 3, 2009). The most recent decline is attributed to the decision of lenders from whom the family had borrowed to sell the shares that were pledged with them. But the earlier declines must have been the result either of sale of shares by promoters or of sale of new shares to investors. According to audited balance sheet figures (if they are to be trusted) available from the CMIE’s database, the paid-up equity in Satyam Computer Services rose from Rs. 56.24 crore in March 2000 to just Rs. 64.89 crore by March 2006 and further to Rs. 133.44 crore in March 2007. Overall, the number of shares held by the promoter group fell from 7.16 crore (22.8 per cent) to 5.8 crore (8.6 per cent) between September 2001 and September 2008.

This points to a conscious decision by the promoters to sell shares, which may have been used to acquire assets elsewhere. The more inflated the share values, the more of such assets could be acquired. It is quite possible that the assets built up by the eight other Raju family companies under scrutiny, including Maytas Properties and Maytas Infra, partly came from the resources generated through these sales. If true, this makes Raju’s confession suspect, since he stated that “neither myself, nor the Managing Director (including our spouses) sold any shares in the last eight years — excepting for a small proportion declared and sold for philanthropic purposes.”
This may not have been the only way in which resources were transferred out of Satyam Computer Services into other arms of the expanding Raju family empire. Money could have been siphoned out through opaque transactions with beneficiaries who were paid sums not warranted by their business profile. Satyam’s business strategy did involve unusual transactions. One example was the acquisition in 1999 by group company Satyam Infoway, which was the largest private Internet Services Provider in the country at that time, of IndiaWorld Communications, for a sum of $115 million. The acquired company operated popular portals such as samachar.com and khel.com that had no clear revenue model, and was the principal beneficiary just as in the AOL deal. According to reports, the owner of IndiaWorld was himself charged with intellectual property violations by his erstwhile employer IndiaWorld.com, an Internet services company managed by U.S.-based ASAP Solutions Inc. Satyam Infoway’s position was that it was aware of the claim being made by ASAP Solutions, but that its interest was not in IndiaWorld.com but was “limited to the URL indiaworld.co.in and the other portals under its banner,” for which it had of course paid a huge sum. There is reason to suspect that this acquisition delivered little to the company, raising questions about the motivation.

Mr. Raju’s confession is also suspect for another reason, which has been widely discussed in the media. Even if he and his colleagues were inflating revenues and profits, the actual revenue earning capacity of the company, as confessed by him, seems to be extremely low. He claims that the huge difference between actual and reported profits in the second quarter of 2008-09 was because the ratio of operating margins to revenues was just 3 per cent rather than the reported 24 per cent. But even if Satyam Computer Services was cooking its books, it was engaged in activities similar to that undertaken by other similarly placed IT or ITeS companies and it too had a fair share of Fortune 500 companies on its client list. It is known that many of these companies have been showing operating margins that are closer to the 24 per cent reported by Satyam than the 3 per cent revealed in Mr. Raju’s confession. Thus in financial year ending March 2008, the ratio of profits before tax of Infosys was 32.3 per cent of its total income, that of TCS 23.1 per cent, of Satyam 27.8 per cent, and that of Wipro 19.2 per cent.

This suggests that either Mr. Raju is exaggerating the hole in his balance sheet or there is some other, more complex, and more disturbing explanation. But whatever it is, the difference between 24 per cent and 3 per cent seems too large to be the industry standard.

Despite indicators of these kinds, which could raise suspicion, Satyam Computer Services remained a leading player with substantial investor support for many years. The promoters continued to hold control over the company despite the small share in equity they held and built an empire with land assets and contracts for executing prestigious infrastructural projects. And despite its award-winning reputation for corporate governance, its impeccable board with high-profile independent directors, and its appointment of big-four member PwC as its auditor, this still mysterious accounting fraud occurred. The full truth, it appears, is not yet out.

Reference : The Hindu - 14-Jan-2009