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Satyam Computer Scam

Satyam Computer Services Ltd. was a major Indian outsourcing firm that was embroiled in one of India's biggest corporate scandals. In 2009, the company's founder, B. Ramalinga Raju, admitted to inflating earnings and revenues by $1 billion, almost 94% of the company's cash. He did this in order to prevent a takeover of the company as the founders held only a small stake. Raju and several other top executives were found guilty of fraud by a special CBI court and sentenced to prison in 2015. The scandal severely damaged investor trust in Indian markets.

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Subham Mehta
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68 views

Satyam Computer Scam

Satyam Computer Services Ltd. was a major Indian outsourcing firm that was embroiled in one of India's biggest corporate scandals. In 2009, the company's founder, B. Ramalinga Raju, admitted to inflating earnings and revenues by $1 billion, almost 94% of the company's cash. He did this in order to prevent a takeover of the company as the founders held only a small stake. Raju and several other top executives were found guilty of fraud by a special CBI court and sentenced to prison in 2015. The scandal severely damaged investor trust in Indian markets.

Uploaded by

Subham Mehta
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Satyam computer scam!

Satyam Computer Services Ltd. has been a pioneering force in the


global information technology (IT) outsourcing market—the
company prefers the term "right-sourcing"—since the late 1980s.
The company provides a full range of IT services, including software
and systems management and development, engineering solutions,
infrastructure management, and enterprise business solutions.
Satyam also serves the business processing outsourcing (BPO)
market, in particular through majority held subsidiary Nipuna,
providing back office, customer care, product and technical support,
human resources, finance and accounting, and many other related
services. The company also provides e-commerce and web site
development and management operations, including web-based
financial, supply chain, customer relationship, and other services.
Satyam operates on a global level, with offices in 55 countries, and
more than 30,000 employees serving nearly 500 companies,
including more than 150 Fortune 500 corporations. The company
offers outsourcing services through its network of offices throughout
India. Satyam also provides onsite services, as well as offsite
operations in 15 development centers in the United States,
the United Kingdom, the United Arab
Emirates, Canada, Hungary, China, Singapore, Japan, Malaysia, Au
stralia, and India. The company has also been developing a network
of "nearshore" offices, filling the gap between the offshore and
onsite segments. As such, Satyam's Canadian operations provide
services to the North American markets, while its Chinese offices
serve the Asian region, and its Hungarian office provides similar
services to the European market. Satyam is listed on the New
York Stock Exchange and is led by founder and Chairman B.
Ramalinga Raju, and his brother, cofounder and CEO Ramu Raju.
In 2006, the company posted revenues of $1.09 billion.

A special court under India’s Central Bureau of Investigation (CBI) on


April 10 held the founders and former officials of outsourcing firm,
Satyam Computer Services, guilty in an accounting scam worth
Rs7,000 crore ($1.1 billion). B Ramalinga Raju, the company’s former
chairman, has been sentenced to seven years in jail.

The case, which is also called the Enron of India, dates back to 2009.
Six years ago, Raju wrote a letter to the Securities and Exchange Board
of India (SEBI) and his company’s shareholders, admitting that he
had manipulated the company’s earnings, and fooled investors.
Nearly $1 billion—or 94% of the cash—on the books was fictitious.

In an immediate reaction to the confession, investors lost as much as


Rs14,000 crore ($2.2 billion) as Satyam’s shares tanked.

Raju explained his reasons for inflating earning in the letter thus: ”As
the promoters held a small percentage of equity, the concern was that
poor performance would result in a takeover, thereby exposing the
gap.”

“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,” Raju said in the letter. “It has attained unmanageable
proportions as the size of the company operations grew significantly.”

Raju was once the poster boy of India’s IT revolution—rubbing


shoulders with top CEOs and politicians across the world, including
Bill Clinton.
Here’s a timeline of what went wrong at Satyam.

1987: Thirty three-year-old Raju establishes Satyam Computer with


his brother and a brother-in-law in Hyderabad.

1991: The company is listed on the Bombay Stock Exchange, where its
initial public offering is oversubscribed by as much as 17 times.

1993: Satyam Computer signs a deal with US-based Dun & Bradstreet
to set up Dun & Bradstreet Satyam Software. Satyam holds 24% stake
in the venture, while Dun & Bradstreet holds the remaining. In 1996,
Satyam sells its stake to Dun & Bradstreet, ahead of a restructuring,
and the new company is called Cognizant Technologies.

1999: Satyam Infoway, a subsidiary of Satyam Computer,


becomes the first Indian information and communication technology
company to be listed on Nasdaq, and Satyam expands footprint to 30
countries.

2006: Satyam’s revenues cross $1 billion. Raju becomes the chairman


of industry body, The National Association of Software and Services
Companies.

2007: Raju is named Ernst & Young Entrepreneur of the Year.


The company bags contract to be the official IT services provider of the
FIFA World Cups in 2010 and 2014.

2008: Satyam’s revenues cross $2 billion. In December, the company


decides to buy out Maytas Infra—owned by Raju’s sons—for $1.6
billion. The deal falls through after investors and board members
object, and in a span of four days, four directors of the company quit.
(Maytas is Satyam spelt backwards.)

January 2009: Satyam is barred from doing business with the


World Bank for eight years. The World Bank alleges that Satyam was
involved in data thefts and staff bribery. Shares fall to record low in
four years. Satyam employees receive a letter from Raju admitting to
the fraud, following which he resigns as chairman.

Raju and his younger brother B Rama Raju are arrested by police,
while the Indian government steps in and disbands Satyam board.

January 9, 2009: Ramalinga Raju and his younger brother B. Rama


Raju arreste. Central govt disbands Satyam’s board, to appoint its own
10 directors.
June 2009: Tech Mahindra, owned by the Mahindra Group, and
Satyam merge to form India’s fifth largest IT exports company. The
merged entity is called Mahindra Satyam.

November 2011: Raju gets bail from India’s supreme court after the
CBI fails to file charge-sheet.

October 2013: India’s enforcement directorate files a charge-sheet


against Raju and 212 others under money-laundering charges.

July 2014: India’s market regulator SEBI bars Raju from the capital
markets for 14 years, and also seeks Rs1,849 crore as fine.

April 2015: The special CBI court holds Raju and nine other officials
guilty of cheating. Among those held guilty are two former partners at
PwC. “We are disappointed with this verdict given by the court of the
Additional Chief Metropolitan Magistrate at Hyderabad,” accounting
firm PwC said in a statement.

Raju, who also has to pay a fine of about $800,000 (Rs5 crore), has
served 32 months in prison so far.

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