Satyam Fraud Scam

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  • Topic: Mahindra Group, Mahindra Satyam, Hyderabad, India
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  • Published : April 3, 2011
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Ramalinga Raju's shock resignation on 7 January 2009 in Hyderabad, India as chairman of Satyam Computer Services blew the Indian economy in general and its information technology sector in particular when he confessed fraud running into millions of dollars in a letter he wrote to the company’s board of directors (Ramachandran, 2009). This report is going to focus on, an overview of the events that happened in Satyam, its consequences on Satyam’s stakeholders, the auditors involved and their role in the scam and the current situation of those responsible for the fraud. OVERVIEW OF EVENTS IN SATYAM FROM 1987-2009

Raju formed Satyam in 1987 in Hyderabad, India with fewer than 20 employees which then became one of India’s biggest IT services firm (Atesci, Bhagwatwar, Deo, Desouza & Baloh, 2010). It was listed on the Bombay Stock Exchange (BSE) in 1991 and after its initial public offering the company grew very quickly. It employed nearly 53,000 employees and operated in 67 countries worldwide (Winkler, 2010). In 2001 Satyam was listed at the New York Stock Exchange (NYSE) (Atesci et al. 2010). Satyam seemed to be in fine financial health reporting positive results during 2008 and claimed victory in navigating the economic crisis. In October, the first crack in the company's character occurred, when the World Bank fired Satyam and issued an eight-year ban against the company. Satyam was accused for installing spy systems on the computers of World Bank and stealing its assets (Ramachandran, 2009). During an October conference call reporting earnings, an analyst drew awareness to large cash balances in non-interest bearing bank accounts. Investors ignored the analyst’s comment and the stock price rose with reports of positive earnings and revenue growth (Winkler, 2010). In December 2008, Satyam's Board of Directors approved the purchase of two construction firms in which Raju’s sons held stakes (Ramachandran, 2009). Shareholders viewed the purchase as an attempt to tap money out of Satyam into the hands of the Raju family. Satyam quickly terminated the transactions, but the incident still caused major damage to Satyam's name. Its shares dropped almost 10 percent and four of the five independent directors resigned. Satyam hired Merrill Lynch to advise it on ways to boost shareholder value (Winkler, 2010.) On 7 January 2009, Raju confessed in a letter to Satyam's board of directors of the inflated profits and the "fictitious" assets and non-existent cash that the company had held for years. (Ramachandran, 2009). Rs.14,000-crore were washed off from the investors' fund because of Satyam’s fraud (“Court grants bail,” 2010). The NYSE suspended trading in Satyam stocks, though the BSE and the National Stock Exchange of India did not do so (Murthy, 2009). SOME EXAMPLES OF FRAUD IN SATYAM

Raju, confessed that the companies assets were inflated by 71.36 billion rupees by booking fake interest, overstating debt, exaggerating cash balances and understating liabilities. He and his associates pledged their shares at inflated values and got 19.3 billion rupees. Fake customers and fake invoices were created by Satyam officials to inflate revenues by 4.3 billion rupees and 12.2 billion rupees worth loans and advances were obtained by forging documents. These funds which were fraudulently obtained were then used by company officials to buy more than 1000 properties worth 3.5 billion rupees (“India: Satyam Fraud,” 2009).


The stakeholders in this scam were the clients in India and overseas, shareholders, employees, banks, etc. The government extended financial help to Satyam and considered all the proposals by the newly constructed board as there were many jobs at stake as well as it had to save an international Indian brand (“Satyam may get Financial Support from Government”, 2009). Even though Tech Mahindra has taken over Satyam, now known as Mahindra Satyam, it still falls...
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