Updated: April 10, 2015 3:38:39 am
B Ramalinga Raju, who was sentenced by a CBI court on Thursday to 7 years in jail, founded Satyam in 1987 and made it India’s fourth largest IT firm, which reaped huge profits after making solutions to tackle the Y2K crisis before falling from grace. Shruti Srivastava explains how the country’s biggest accounting fraud unfolded.
How did the Satyam scam unfold?
On January 7, 2009, B Ramalinga Raju — the then chairman and also the founder of Satyam Computer Services — wrote a letter to the company’s board, wherein he admitted of fudging the accounts of the firm to the tune of over Rs 7,800 crore. The letter, which was also marked to the Sebi chairman and stock exchanges, stated that apart from inflating the profits, Raju had understated the liability, accrued non-existent interest, overstated debtors and inflated cash and bank balances. According to his admission, “The company had to carry additional resources and assets to justify a higher level of operations thereby significantly increasing the costs. Every attempt made to eliminate the gap failed … It was like riding a tiger, not knowing how to get off without being eaten.” Apart from Ramalinga Raju and his brothers B Rama Raju and Suryanarayana Raju, the scam involved seven other players – former CFO Vadlamani Srinivas, former PW auditors S Gopalakrishnan and T Srinivas, former employees G Ramakrishna, D Venkatpathi Raju and Ch Srisailam and former internal chief auditor VS Prabhakar Gupta. Earlier, Raju, lured by the boom in real estate had encouraged his sons to get into the sector and launched two firms — Maytas Infrastructure and Maytas Properties. His admission on January 7 was a result of an aborted Maytas acquisition deal by Satyam through which he was trying to fill in the fictitious assets with real ones.
What actions were taken by the regulators?
Two days later, following the confession and the subsequent resignation of Raju from the company, the Andhra Pradesh Police arrested him and his brother B Rama Raju on charges of forgery and cheating while the ministry of corporate affairs announced the super-cession of the Satyam board. On January 10, the Company Law Board (CLB) barred the Satyam board from functioning and appointed government nominee directors on the board. During the probe, the Serious Fraud Investigation Office (SFIO) found the auditors and PW guilty while also pointing out that the independent directors were mute spectators while the fudging played out. The Institute of Chartered Accountants of India (ICAI) also found the auditors and CFO involved guilty of professional misconduct. After completing the disciplinary proceedings the accounting regulator barred the auditors involved in the scam. The case was later handed over to the CBI.
Amid the ongoing probe, on February 2, Mahindra & Mahindra-owned Tech Mahindra expressed interest in acquiring Satyam. The government appointed AS Murthy as the new CEO and under him, the new board started the process of selling the firm. Sebi then gave its nod to sell 51 per cent stake in the company and the bids were invited. In April, through a public auction process, Tech Mahindra through its subsidiary VenturePay acquired Satyam and the entity named Mahindra Satyam was born.
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