Scam
Scam
Assignment I
Group members
Shubham Bawkar-09
Priyanka Gupta-38
BACKGROUND HISTORY OF SATYAM
Satyam computer services ltd was incorporated by the two brothers, B Raman Raju and b Ramalinga
Raju, as a private limited company for providing software development and consultancy services to
large corporation in 1987.
In 1997, it was selected by the world economic forum as one of India’s most remarkable and rapidly
growing entrepreneurial companies.
In 2005, was ranked 3rd in corporate governance survey by global institutional investors.
As of 2009, Satyam
Was the 4th fastest growing it company in India
Had 9% market share
Had 53000 employees
Revenue of $2.1 billion
First Indian company to be listed on three international exchanges: NYSE, DOW,
EURONEXT .
HOW THE SCAM UNRAVELLED
On January 7, 2009 Ramalingam Raju disclosed in a letter to the board of directors that he had been
manipulating the company’s accounting members for years which are estimated to range from 2003-
08.
Mr. Raju claimed that he overstated assets on Satyam’s balance sheet by $1.47 billion. Nearly $1.04
billion in bank loan and cash that the company claimed to own was nonexistence. Satyam also
underreported its liabilities.
This was done to make it appear to be a far bigger enterprise than it actually was. They also sewed up
deals with fictitious clients and introduced over 7000fake invoices to record sales that simply didn’t
exist. Profits to were padded up to show healthy margins.
Satyam was reporting sales of over 5200crore in 2008-09, when it was in reality making about 4100
crores. Its operating profit margin were shown at 24% when they were actually at 3%and its handsome
profits on paper covered up for real -life losses.
DETAILS OF THE SCAM
The Balance Sheet and Profit and Loss Account as of September 30, 2008 showed:
• Inflated (non-existent) bank and cash balance of Rs. 5040 crores (as against Rs. 5312 crores as shown in the
books)
• A non-existent accrued interest of Rs. 376 crores
• An understated liability of Rs. 1230 crore on account of funds arranged by BR Raju
Debtors position of Rs 490 crore is overstated (as against Rs 2,651 reflected in the books)
• 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 crore and an actual operating margin of Rs 61 crore (3% of revenues).
• Staff overstated by 13,000.
• Dec 16: Satyam announces the $1.6bn acquisition of two companies Matyas Infra and Matyas
• Dec 17: Mr. Raju says Satyam is considering a share buyback in a move to regain investors' confidence after
its stock plunged.
Dec 24: The World Bank bars Satyam from doing business with it for 8 years
Dec 25: Mangalam Srinivasan, an independent director at Satyam, resigns
• Dec 27: Satyam appoints Merrill Lynch to review "strategic options to enhance shareholder value"
• Dec 29: Three more directors quit the company as the independence of the board members is questioned
• Jan 3: Satyam says its founder's stake fell by a third to 5.13%
• Jan 6: Raju's stake fell further to 3.6%
• Jan 7: Mr. Raju resigns after he admits falsifying Satyam books.
AFTER EFFECTS OF THE CONFESSION
• The Company Law Board decided to bar the current board of Satyam from functioning and appoint 10
nominal directors.
• Among 6 new board of directors appointed were: noted banker Deepak Parekh, former NASSCOM chief
Kiran Karnik and former SEBI member C Cauthen
INVESTIGATION AND PUNISHMENT
• The Serious Fraud Investigation Office (SFIO), a multi- disciplinary investigating arm of the Ministry of
Corporate Affairs: 6 months imprisonment with a fine of Rs. 10 Lakh; challenged in court CB Investigations:
Final verdict pending, result on April 9 2015
• Class-action Suits in the US: Settlement with lead plaintiffs of $125 million
• Against PWC: Class action lawsuit settled for $25.5 million and fined $6 million by SEC
ACQUISITION BY MAHINDRA
• Anand Mahindra of Mahindra took over the company for Rs 2890 crore through a government mediated
auction and acquired a 51% stake in the company
• The shares were bought at $1.13 per share, less than a third of what the prices were before Raju's confession
• The Tech Mahindra merger was successfully completed on June 25, 2013 as it faced various issues from the
courts, the government and the legislation
WHY ACQUIRE?
• Acquire 100% share in Maytas Properties and 51% share in Maytas Infra which were owned by
Ramalingam Raju's sons
• The Raju's already had 35% share in both the companies.
• The total valuation of these two acquisitions was $1.6 billion making the acquisition itself illegal as per the
Company's Act for no shareholder approval was taken
• An attempt to bridge the gap between the fictitious assets of Satyam with real assets of Maytas
Independent Directors
Separation of personal interests and interests of the stakeholders and the company. New reforms should
increase personal liability of board members and make it easier for stakeholders to sue them