SATYAM SCAM

PRESENTED BY: DISHA(213203)

ADITI(213128)
PALLAVI(213208)
ANANYA(213172)
PIYUSH(213111)
 CONTENT
 OVERVIEW
 BACKGROUND STORY OF SATYAM FRAUD CASE
 FACTORS THAT CONTRIBUTED TO SATYAM FRAUD CASE
 TIMELINE
 HIGHLGHT OF SATYAM SCANDAL
 ROLE OF AUDITORS
 CONTRIBUTION OF SATYAM’S BOARD OF DIRECTOR IN THE SCAM
 ACQUISITON BY MAHINDRA GROUP
 INITIAL CONFESSION AND INVESTIGATION
 WHO EXPOSED SATYAM SCAM?
 HOW WAS THIS SCANDAL RESOLVED?
 INDIA’S REGULATORY AND CORPORATE GOVERNANCE REFORMS
 CONTROVERSIES
 GOVERNMENT’S REACTION TO SATYAM SCAM
 ACCOUNTING REPORTS
 CONCLUSION
 LESSON LEARNT
 OVERVIEW

The Satyam Computer Services scandal was India's largest

corporate fraud until 2010. The founder and directors of India-
based outsourcing company Satyam Computer Services,
falsified the accounts, inflated the share price, and stole large
sums from the company. Much of this was invested in property.
The swindle was discovered in late 2008 when the Hyderabad
property market collapsed, leaving a trail back to Satyam.[1]
The scandal was brought to light in 2009 when chairman
Byrraju Ramalinga Raju confessed that the company's accounts
had been falsified.
BACKGROUND STORY OF SATYAM
SCAM

 In the Indian outsourced IT-services market, Satyam Computer Services Limited was a rising star. Mr.
Ramalinga Raju established the firm in Hyderabad in 1987. The company began with 20 workers and
quickly expanded to become a worldwide company with operations in 65 countries across the world.
Satyam was the first Indian business to be listed on three global stock exchanges, namely New York
Stock Exchange (NYSE), DOW Jones, and EURONEXT.
 After TCS, Infosys, and Wipro, it was recognized as India’s fourth-largest software exporter. The
corporation had significant expansion in the 1990s. Satyam Renaissance, Satyam Info way, Satyam
Spark Solutions, and Satyam Enterprise Solutions were formed as a result of the same. Satyam Info
Way (Sify) was the first Indian internet business to be listed on the NASDAQ. In the new century,
Satyam acquired a number of firms, extended its operations to a number of countries, and signed
MoUs with a number of international corporations.
 Factors that contributed to the
Satyam Fraud Case

 Greed  ESOPs issued to those who prepared fake bills

 Ambitious corporate growth  High risk deals that went sour
 Deceptive reporting practices, lack of  Audit failures (both internally and externally)
transparency  Aggressiveness of investment banks,
 Excessive interest in maintaining stock prices commercial banks.
 Executive incentives  Rating agencies and investors
 Stock market expectations  Weak independent directors and Audit
 Nature of accounting rules committees
 Whistleblower policy not being effective
 TIMELINE OF SATYAM SCAM

1987 Incorporated as private limited company in 1987

• Recognized as a public limited company; debuts on the Bombay Stock Exchange

(BSE) 1991
• IPO oversubscribed by 17 times
 • Satyam signs joint venture with Dun & Bradstreet for IT Services

1993 • Joint venture with GE announced 1999

• Satyam Infoway (Sify) becomes the first Indian Internet company listed on NASDAQ
• Satyam forms joint venture with TRW Inc.
• Presence established in 30 countries

• Becomes the Official IT Services Provider for the FIFA World Cups, 2010 (South
Africa) and 2014 (Brazil) 2007
• Becomes the first Asian company to feature in the Training Magazine’s list of
Top 125 companies for learning

Awarded with golden peacock award for corporate governance by

2008 London council
 HIGHLIGHTS OF SATYAM SCANDAL

In the aftermath of the scandal, Tech Mahindra purchased Satyam through

public auction, following which the new company was branded as ‘Mahindra
Satyam.’ SEBI barred Price Waterhouse (PwC), the auditor of Satyam
Computers, from conducting any audit processes for any company in India for
two years, starting 2018. From Rs. 554 on the BSE and $29.10 on the NYSE
in 2008, the share prices of Satyam fell to Rs. 11. 50 and $1.80 respectively.
 ROLE OF AUDITORS

 PricewaterhouseCoopers affiliates served as independent auditors of Satyam Computer Services

when the report of scandal in the account books of Satyam Computer Services broke. The Indian arm
of PwC was fined $6 million by the US SEC (US Securities and Exchange Commission) for not
following the code of conduct and auditing standards in the performance of its duties related to the
auditing of the accounts of Satyam Computer Services.
 In 2018, SEBI (Securities and Exchange Board of India) barred Price Waterhouse from auditing any
listed company in India for 2 years, saying that the firm was complicit with the main perpetrators of
the Satyam fraud and did not comply with auditing standards. SEBI also ordered disgorgement of
over Rs 13 crore wrongful gains from the firm and 2 partners. PwC announced their intent to get a
stay order.
 CONTRIBUTION OF SATYAM’S
BOARD OF DIRECTORS IN TH SCAM

 The Satyam Board of Directors had nine members. As required by Indian listing rules,
five members of the Board were independent. Satyam stated in regulatory filings with
the SEC that it did not have a financial specialist on its Board of Directors in 2008.
Concerns also arose afterward about the Board of Directors’ lack of independence.
 The Board of Directors included a number of well-known corporate heavyweights,
which possibly contributed to Satyam’s lack of scrutiny. Krishna Palepu, a Harvard
professor and corporate governance specialist, Rommohan Rao, the Dean of the Indian
School of Business, and Vinod Dham, co-inventor of the Pentium Processor, were
among the Board’s members.
 On December 16, 2008, the Board came under fire for approving Satyam’s purchase
of real estate firms in which Mr. Raju had a significant stake. After a shareholder
uprising, the Board of Directors revoked the approval. Within two days of the
transaction’s cancellation, Krishna Palepu, Rammohan Rao, and Vinod Dham all
resigned from the Board.
 The bungled deal gave the appearance to investors that the Board of Directors was not
actively monitoring Satyam. Furthermore, the Board of Directors should have noticed
some of the same red signals that PwC, the auditor, missed.
 Furthermore, the fact that Mr. Raju reduced his Satyam shares considerably in the
three years leading up to the fraud’s discovery should have troubled the Board of
Directors. Mr. Raju’s stake in the company dropped from 15.67 percent in 2005-2006
to 2.3 percent in 2009.
 ACQUISITION BY MAHINDRA GROUP

On 13 April 2009, via a formal public auction process, a 31% stake in

Satyam was purchased by Mahindra & Mahindra owned company Tech
Mahindra, as part of its diversification strategy. Effective July 2009,
Satyam rebranded its services under the new Mahindra management as
"Mahindra Satyam". After a delay due to tax issues,Tech Mahindra
announced its merger with Mahindra Satyam on 21 March 2012, after the
board of two companies gave the approval . The companies merged legally
on 25 June 2013.
 INITIAL CONFESSION AND
INVESTIGATION
 On 7 January 2009, the chairman of Satyam, Byrraju Ramalinga Raju, resigned, confessing that he
had manipulated the accounts of Rs 7,000 crore in several forms. The global corporate community
was said to be shocked and scandalized.
 In February 2009, the CBI took over the case and filed three partial charge sheets (dated 7 April
2009, 24 November 2009, and 7 January 2010), over the course of the year. All charges arising
from the discovery phase were later merged into a single charge sheet.[clarification needed]
[citation needed]
 On 10 April 2015, By rraju Ramalinga Raju was convicted with 10 other members.
 WHO EXPOSED SATYAM SCAM?

The Satyam scam was exposed by an anonymous whistleblower who

sent emails to one of the company’s directors, Krishna Palepu, revealing
the fraud. Palepu forwarded the emails to another director and S.
Gopalakrishnan, a partner at PwC, the auditor of Satyam. The emails
were sent from the alias Joseph Abraham. The whistleblower also
alerted the SEBI and the media about the scam. The emails prompted an
investigation by the regulators and the auditors, eventually leading to
Raju’s confession and arrest.
 HOW WAS THIS SCANDAL
RESOLVED?

The Satyam scandal was resolved through a series of legal and

regulatory actions, as well as through corporate restructuring and
changes in leadership. Here are the steps that were taken to resolve the
scandal:
 Legal action: The Indian government launched a probe into the
Satyam scandal, and Ramalinga Raju and several other executives
were arrested and charged with fraud and forgery. Raju eventually
admitted to the fraud and was sentenced to seven years in prison.
Other executives were also convicted and sentenced to prison terms.
 Corporate restructuring: Satyam was acquired by the Mahindra Group, which undertook
a significant restructuring of the company. The company was rebranded as Mahindra
Satyam and later as Tech Mahindra, and new leadership was brought in to restore its
reputation.
 Changes in corporate governance: The Satyam scandal highlighted the need for stronger
corporate governance norms in India. The Securities and Exchange Board of India (SEBI)
implemented new regulations requiring greater transparency and accountability from
companies and their boards of directors. The government also established the National
Financial Reporting Authority (NFRA) to oversee financial reporting and auditing.
 Compensation for investors: The Satyam scandal had a significant impact on the
company’s investors, who lost money as a result of the fraud. The government set up a
compensation fund to reimburse investors for their losses.
 INDIA’S REGULATORY AND
CORPORATE GOVERNANCE REFORMS

The Satyam scandal highlighted the many flaws of the Indian legal system while also throwing light on
the developing democracy’s financial system. The reforms that were introduced post the well-known
scandal has been laid down hereunder:
 Investors and authorities urged for a stronger regulatory environment in the securities markets after
the Satyam crisis. The SEBI increased corporate governance (CG) standards as well as financial
reporting rules for publicly traded businesses listed in the nation in reaction to the Satyam scandal. In
addition, the SEBI reaffirmed its commitment to the implementation of International Financial
Accounting Reporting Standards (IFRS). The Ministry of Corporate Affairs (MCA) has also
developed a new Corporate Code and is considering amending securities rules to make it simpler for
shareholders to file class-action lawsuits.
The following are some of India’s recent CG reforms:
 Independent Directors are appointed,
 Pledged securities disclosure.
 Financial accounting disclosures increased.
 IFRS, and
 The Ministry of Corporate Affairs has created a new corporate code .
Satyam blatantly flouted all corporate governance requirements. The Satyam debacle served as a cautionary
tale for improper CG practices. It had failed to maintain a positive relationship with its shareholders and
staff. Satyam’s CG problem occurred as a result of the company’s failure to meet its obligations to many
stakeholders. The following are of particular interest:
 Separating the duties of the board and management,
 Separating the functions of the CEO and chairman,
 Appointment to the board,
 Directors and executive remuneration, and
 Protecting the rights of shareholders and their executives.
 Scandals ranging from Enron to the present financial crisis have repeatedly
demonstrated the need for ethical behaviour based on solid ethics. It’s unsurprising
that such deceptions may occur anywhere in the world at any moment. The Satyam
scandal prompted the Indian government to strengthen CG regulations in order to
prevent such frauds in the future. The government acted quickly to protect investors’
interests while also preserving India’s reputation and image at a global level.
 CONTROVERSIES

 TAX EVASION
Before the asset inflation scandal hit, the Income Tax Department had issued notices to the company seeking ₹
6.17 billion tax, for the assessment years from 2003–04 to 2008–09 after disallowing exemptions claimed by the
software firm. The Central Board of Direct Taxes attached the properties of Mahindra Satyam on 30 January 2012,
after issuing notices to the company seeking payment of the tax. The Andhra Pradesh High Court stayed the order
in February 2012.
 MAYTAS ACQUISITION
In December 2008, Satyam founder B. Ramalinga Raju made a final attempt to conceal his falsification of the Satyam
Computer Services balance sheets by acquiring Maytas Infrastructure and Maytas Properties for $1.6 billion, despite concerns
raised by independent directors. Both companies were founded by Raju's family members and were owned by Raju's sons.
This eventually led to a review of the deal by the government, and a veiled criticism by the then Vice President of India Hamid
Ansari. Several of Satyam's clients responded by re-evaluating their relationship with the company. Satyam's investors lost
about ₹3,300 crore (equivalent to ₹92 billion or US$1.2 billion in 2023) in the related panic selling, as Satyam's shares fell
55% on the New York Stock Exchange. Four members of the board of directors resigned on 29 December 2008.
 ACCOUNTING SCANDAL
On 7 January 2009, Chairman Raju resigned after publicly announcing his involvement in a
massive accounting fraud, in which he had inflated the company's cash assets by over $1
billion. In a letter to the Securities and Exchange Board of India, he explained that "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 the company operations grew significantly".
In 2015, Raju was sentenced to seven years in jail and fined about $800,000.
 GOVERNMENT’S REACTION TO
SATYAM SCAM
 The Satyam fraud case taught India a lot. Indian law is continually evolving. However, this is how the
government responded to the Satyam Scam:

STEPS DESCRIPTION
COMPANIES ACT The Companies Act of 1956 was abolished, and the
Companies Act of 2013 took effect. Corporate fraud is
a criminal offence under the new act's terms. The
statute explicitly defines and identifies cost
accountants, auditors, and corporate secretaries as
obligated to disclose Satyam fraud.
ICAI- The Institute of Chartered Accountants of India The accounting organization underlined the auditors'
comprehensive reporting of fictional assets & contingent
liabilities in its audit report.

SEBI The SEBI Regulations 2015 (Listing Obligations and

Disclosure Requirements) were enacted, and they
established criteria for reporting actual and suspected
frauds and disclosing important events that influence the
decision-making ability of investors.

Serious Fraud Investigation Office (SFIO)  This regulatory authority, constituted under the
administration of the Ministry of Corporate Affairs,
was given the status of a statutory organization under
the Companies Act of 2013. In India, it looks into
business and accounting fraud.
 Corporate governance best practices have become an
urgent need.
 ACCOUNTING REPORTS

 FABRICATED BALANCE SHEET AND INCOME STATEMENT OF SATYAM: AS OF SEPTEMBER 30,

2008.
ITEMS RS. IN CRORES ACTUAL REPORTED DIFFERENCE
Cash and Bank Balance 321 5361 5040
Accrued Interest on Bank Nil 376.5 376
Fixed Deposits
Understated Liability 1230 None 1230
Overstated Debtors 2161 2651 490
TOTAL Nil Nil 7136
Revenues (FY 2009) 2112 2700 588
Operating profits 61 649 588
 PROMOTER’S SHAREHOLDING PATTERN IN SATYAM FROM 2001 TO 2008

AS ON PROMOTER’S HOLDING IN %

March 2001 25.6

2002 22.26

2003 20.74

2004 17.35

2005 15.67

2006 14.02

2007 8.79

2008 8.74

December 2008 2.18

 CONCLUSION

The Satyam accounting fraud is the largest fraud scandal to happen in the history of India. It was
conducted over a period of about 10 years by the company’s chairman and other top executives. It is
evident from the foregoing discussion that Satyam’s management did not honor the code of ethics and
standards that govern the accounting profession. They inflated their financial accounts in order to present
a false image of their company’s financial performance. The scandal was exposed by Merrill Lynch after
discovering financial inconsistencies in the financial statements of Satyam. The chairman and other top
executives resigned, the company’s share price fell drastically, investors lost $2.2 billion, and the
government appointed a board to handle the situation. The company was sold to Tech Mahindra, and the
two entities merged to form Mahindra Satyam. The Satyam accounting fraud occurred due to many years
of financial manipulation of accounts that was intended to fool investors and the public into believing that
Satyam was performing well financially. Such occurrences can be avoided by adhering to accounting
ethics, honoring business ethics, and by promoting transparency and accountability within organizations.
 LESSON LEARNT

Compelled government to rewrite Corporate Governance rules, and tighten the norms of
Chartered Accountants.

Responsible self-regulation with adequate disclosure and accountability.

Criteria for remuneration to key personnel and strengthening quality review should be there
in place
Voluntary corporate governance code should be adopted.

Promoters should be prohibited from interfering in the recruitment of

independent directors.

Company should build sustainable competitive advantage through ethics, values, excellence,
quality, social responsibility and human development.

Whistleblowers play an important role in letting others know about the fraud .

People training on ethical values.