saytam scam

7/31/2019 saytam scam

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Satyam computer services limited was founded in 1987 by

Mr. B. Ramalinga Raju

Satyam computers started with only 20 employees

The company offers consulting and information

technology services to various sectors

Satyam computers converted into public ltd co. In 1991

Listed in Bombay stock exchange in 1991

Listed in New York stock exchange in 2001

Listed in EURONEXT Amsterdam stock exchange in 2008

There were 52000 employees working in satyam in September

2008


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In June 1991 satyam made 185 clients from first fortune

500 companies

In 1994 satyam made allies with Dun & Brad Street Crop

an USA based company

In 2000 satyam was declared one of the 100 mostpioneering technology companies by World Economic

Forum

In 2006 satyam ranked No. 1 in the ASTD award

(American Society For Training And Development)

On April 14, 2008, Satyam won awards from MZ

consult's for being a leader in India in corporate

governance and accountability


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Overview of the scam

Accounting fraud of over 7800 crores rupees

Past 7 years accounting books were cooked:

-Profits were inflated

-Understated liability and overstated debts

-Accrued interest (which was non-existent )

-The gap in the balance had risen due to inflated

profits

Planned to buy the Maytas to fill the gap in the balance sheet


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Ramalinga Raju: Satyam Former Chairman

B Rama Raju: Brother of Ramalinga Raju,

Former Managing director

V Srinivas: Ex-chief financial officer

S Gopalakrishnan: PriceWaterhouse Auditor

Talluri Srinivas: PriceWaterhouse Auditor


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Stock markets around the world collapsedduring 2008 & the BSE fell from 21,000 tobelow 8,000.

The losses caused investors to withdrawfunds from the stock market.

Satyams continuance positive results during2008 , even in the economic crisis.

In October 2008, satyam reported net incomeof $132.3 million, an increase of 28 percent

from the same quarter of the previous year.


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Saytam asserted that, despite the challengingenvironment, it continued to findopportunities for growth.

During October, one stock analyst drewattention to large cash balances in non-

interest bearing bank accounts & expressedconcern about the large balances and theaccuracy of the numbers.

Investors ignored the analyst's and the stockprice rose with the reports of positiveearnings and revenue growth.


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In December 2008, Board of Directorsapproved the purchase of Maytas Properties

and Maytas Infrastructure, two companiesunrelated to the information technology field.

At the time, Mr. Raju and the Board

anticipated that the market would "bedelighted" by the two transactions as it wouldprovide Satyam with greater diversification.

However, investors were outraged over the

transactions because Mr. Raju's family held alarger stake in Maytas Properties and MaytasInfrastructure.


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Shareholders viewed the transactions as anattempt to siphon money out of Satyam into the

hands of the Raju family.Satyam quickly aborted the transactions, but theincident still caused significant damage toSatyam's reputation as a well-managed company.

After the incident, satyam's shares droppednearly 10 percent and four of the fiveindependent directors resigned.

On december 30, analysts with Forrester research

advised clients to stop doing business withsatyam because of the fear of widespread fraud.

Satyam hired Merrill lynch to advise it on ways toincrease shareholder value.


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On january 7, just hours before Mr. Raju

disclosed the fraud, Merrill lynch sent a letter

to the stock exchange indicating that it waswithdrawing from its engagement with satyam

because during the course of its

representation it found accountingirregularities.

On January 7, 2009, Mr. Raju sent letter to

Satyam's Board of Directors admitting that hemanipulated the company's accounts for

numbers years.


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On January 7, 2009, Mr. Raju disclosed in a letter toSatyam's Board of Directors that he had been manipulatingthe company's accounting numbers for years.

Mr. Raju said the manipulation started out small, and grewlarger by the year.

In the letter he stated, "It was like riding a tiger, not

knowing how to get off without being eaten."

Mr. Raju stated that eventually, the stress of hiding thefraud grew too much for him to bear.


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Mr.Raju overstated income in every quarter for several years tomeet analyst expectations.

Mr. Raju created fake bank statements to advance the fraud.

Mr. Raju created 6,000 fake salary accounts and appropriatedthe money after the company deposited it.

The global head of internal audit created fake customeridentities and generated fake invoices against their names toinflate revenue.

Mr. Raju diverted a large amount of cash to other firms that heowned ,since 2004


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Annual report of SATYAM as on September 30,2008.

Fake Balance Sheet

Particulars Amt in CR.

Investment 618.64

Current Assets , Loan & Advance

1.Sundry Debtor 2651.362.Cash & Bank Balance 5312.62

3.Other Current Assets- Interest Accrued On

Fixed Deposits

376.34

4.Loans & Advances 502.22

CURRRENT ASSETS

LIABILITIES

Particulars Amt in CR.

Current liability & provision

1.current liabilities 1669.20

ACTUAL DEBT WAS

2161CR,

OVERSTATED 490 CR.

ACTUAL CASH IN BANKWAS 321, INFLATED

5040 CR.

NO ACCRUED

INTEREST 376.34 CR.

UNDERSTATED

LIABILITY by

1230 Cr.


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Global auditing firm Price Waterhouse Coopers audited Satyam'sbooks from June 2000 until the discovery of the fraud

This fraud was not committed overnight

It was building up continuously from over years

Satyam paid pwc twice what other firms charge for the audit.

They ignored some of the obvious indications of scam, whichcould have been caught much before it acquired the massive

status


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$1.04 billion non-interest bearing deposits in balance sheet.

According to accounting professionals, a reasonable

company would have either invested the cash or returned

the excess cash to the shareholders.

Auditors did not verify with the banks in which satyam

claimed to have deposits.

The fraud went on for a number of years and involved both

the manipulation of balance sheets and income statements. Whenever satyam needed more income to meet analyst

estimates, it simply created fictitious sources and it did so

many times without the auditors ever discovering.


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The Raju family directly owned about one-

third of each in the two companies. In December 2008 satyam Planned to buy the

Maytas.

The company management said the

Acquisition will diversify the company.

Real Plan was to fill the gap in the balancesheet.


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Jobs of over 50000 were at risk.

India`s global image was suffered.

Indian stock market fell dramatically.

Biggest single day fall of 175 Rs. On Jan 6th in saytam share.

SEBI said that, if Saytam found guilty, its license to work inIndia may be revoked.

The New York Stock Exchange halted trading in Satyam

stock.

India's National Stock Exchange announced removal of

Satyam from S&P CNX & Nifty 50.

The GDP fell by 0.4%.

I.T sector suffered a downturn.


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New board of directors were appointed.

Disclosure of pledged securities.

Increased financial accounting disclosure.

Adoption of international standards.

Creation of new corporate code of conduct byMinistry of Corporate Affairs.


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saytam scam

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