SATYAM SCAM

Presented By
Dhananjay kumar
Jaipuria institute of
management, Noida
Satyam
 Introduction
• Satyam a leading global business and information
technology company, delivering consulting, systems
integration, and outsourcing solutions to clients in over
20 industries.
• Satyam Computer Services Ltd was founded in 1987 by
B.Ramalinga Raju.
• The company offers information technology (IT) services
spanning various sectors, and is listed on the New York
Stock Exchange and Euronext.
• Satyam's network covers 67 countries across six
continents.
 Contd.
• The company employs 40,000 IT professionals across
development centers in India, the United States, the United
Kingdom, the United Arab Emirates, Canada, Hungary,
Singapore, Malaysia, China, Japan, Egypt and Australia.
• It serves over 654 global companies, 185 of which are
Fortune 500 corporations.
• Satyam has strategic technology and marketing alliances
with over 50 companies.
• Apart from Hyderabad, it has development centers in India
at Bangalore, Chennai, Pune, Mumbai, Nagpur, Delhi,
Kolkata, Bhubaneswar, and Visakhapatnam.
• Just three months ago, India's fourth-largest software
services exporter, Satyam Computer Services received a
Golden Peacock Global Award from a group of Indian
directors for excellence in corporate governance.

• Ramalinga Raju himself was the recipient of many an

award for corporate governance and transparency
• The fraud has brought to light the fact that in India the
distinction between owners and management is still not
very clear.
• Where the owners are also the managers, such frauds
are always a possibility.
• Satyam is the biggest fraud in India's corporate history.
• The company management, mainly disgraced chairman
B Ramalinga Raju, kept everyone -- seemingly -- in the
dark for a decade and tarnished shining India's image
horribly, is as stupefying a fact as the Rs 7,800 crore (Rs
78 billion) scam itself.
• The company's account books said that Satyam had
over Rs 5,000 crore billion (Rs 50 billion) in the bank,
when it did not. Raju said that he had been fudging the
account books for 'several years' and despite this no one
but he, and his brother, knew of this.
Satyam's auditors
• So what were the auditors,
PricewaterhouseCoopers, doing? There was no
cash with in the company's banks and yet the
auditors went ahead and signed on the balance
sheets saying that the money was there.
• Not just the cash, even they even signed off on
the non-existent interest that accrued on the non-
existent cash balance!
• The company officials said they relied on data
from the reputed auditors.
 Other company bigwigs

Satyam CFO Vadlamani Srinivas (R) being brought

to the Chanchalguda prison after his arrest in Hyderabad.
• Satyam's chief financial officer Srinivas
Vadlamani has already been arrested. He has
even admitted to signing on the dotted line,
saying he never really paid much attention to the
balance sheet!
• But could only two or three people have
managed to cook the books for years of a
company so large? Highly unlikely. It is quite
likely that some other top managers in the
company too were in the know of what was
happening but chose to keep quiet.
THE SEBI
• The Securities and Exchange Board of India, which says
it is 'horrified at the magnitude of the fraud' had in
December given a clean chit to Satyam saying that it had
not found any violation of norms relating to takeover and
corporate governance in its preliminary surveillance of
the deal involving the acquisition of Maytas Infra by
Satyam Computer Services.
• Thus there was no need for a formal investigation.
Therefore, the probe would be limited to the deal
between the two listed entities -- Satyam and Maytas
Infra -- and not cover the one involving Satyam and
unlisted firm Maytas Properties.
• Analysts say the market watchdog lacks
the teeth for ensuring compliance on
governance. Now, after so much water
has flown under the bridge, Sebi has
moved to 'take action' against the
company.
The bankers
• The company's bankers -- and it has a whole
bunch of them, considering it is a huge company
-- too have been shown in poor light.
• Satyam's books showed cash to the tune of over
Rs 5,300 crore (Rs 53 billion) in its banks.
• Satyam's banks -- ICICI Bank, HDFC Bank,
Bank of Baroda, etc -- were supposed to provide
bank statements on a quarterly basis and bank
certificates on basis of which auditors go ahead
and signed the balance sheet.
• So, if the auditors were conned, it means that
either the bank statement and certificates were
forged or the auditors did not take any
cognizance of the fact that bank statements
were showing one figure and the management
was showing some other figure.
• Now, banks are looking at options to stop
sanctioning additional credit lines to the
company and seek an auditor's explanation. The
banks said they would not be affected much
following the findings of fraudulent transactions
in Satyam's balance sheet.
 Directors and independent directors

Satyam Campus in Hyderabad

• The role of the company's directors, including independent
directors, in the entire episode too has been exposed after the
Satyam episode.
• Most of them essentially remain 'nodders' in the boardroom and
agree to whatever the management or the promoters want to push
through.
• The Satyam board, including its five independent directors had
approved the founder's proposal to buy 51 per cent stake in Maytas
Infrastructure and all of Maytas Properties, owned by the family
members of Satyam chairman B Ramalinga Raju.
• Despite the shareholders not being taken into confidence, the
directors went ahead with the management's decision.
• The decision of acquisition was, however, reversed 12 hours later
after investors dumped Satyam's stock and threatened action
against the management.
 Shareholders and the media

Kirit Somaiya, president, Investors' Grievances Forum, filed a case

against Satyam Computer Services in the Bomaby High Court
• Sometimes activism just does not help.
• When Raju sought to push through the Maytas
deal without taking shareholders into
confidence, he was faced with huge protests.
• The media, keen to help the underdog, too
joined in the protest.
• Raju was forced to cancel the deal.
• In hindsight, it appears that it would have
perhaps saved Satyam if the deal had been
allowed to go through, as Satyam would have
been able to use Maytas's assets to shore up its
own books.
• Raju, who showed artificial cash on his books, had
planned to use this 'non-existent cash' to acquire the
two Maytas (which is Satyam spelled in reverse)
companies.

• Since the Rajus held more than 36 percent stake in

Maytas, it would have been easy to push through the
deal, at least from that side.

• But with the shareholders and the media queering the

pitch, the deal fell through and now so has Satyam.
Investment bankers
• Investment banker DSP Merrill Lynch was appointed by Satyam to
look for a partner or buyer for the company a fortnight ago.

• We now know that DSP Merrill terminated its engagement with the
company soon after it found financial irregularities.

• Merrill Lynch is also understood to have sent the information and

the reason for their termination of the contract to the Bombay Stock
Exchange, Sebi and even the New York Stock Exchange, on which
Satyam is listed.

• However, despite the fact that DSP Merrill Lynch blew the whistle, it
is not yet clear why it took such a long time to inform the authorities,
and why it did not let the public know of Satyam's misdeeds.

• DSP Merrill has not yet answered these questions.

• Yet in the whole shady affair, DSP Merrill comes out the best party
as it was finally because of its move that Raju was forced to quit.
 Police stand guard outside the
Chanchalguda prison, where Satyam
ex-chairman Ramalinga Raju is being
held.
• The government, on its part, was perhaps too busy
projecting the stellar show of the Indian IT sector and
did not find it necessary to launch an enquiry into
these 'complaints,' so to speak.
• Thus by way of negligence the government too is
equally guilty in not having managed to save the
shareholders, the employees and some clients of the
company from losing heavily.
Pooja, havan to help Raju get bail!
• Some ardent followers of B Ramalinga Raju and
some employees of Maytas are invoking the
Almighty to come to the aid of the beleaguered IT
strongman.
• These fans conducted a prayer and havan service
to help the disgraced former chairman of Satyam
Computer Services obtain bail.
• The prayers are being held so that Raju comes out
of this entire episode unscathed.
Satyam's new board meets, may elect chairman

HDFC Bank chairman Deepak Parekh.

• Satyam's three-member board constituted by
the government met for the first time on
Monday to discuss ways to get the IT company
back on track.

• Eminent banker Deepak Parekh, IT expert

Kiran Karnik and former Sebi member C
Achuthan arrived at the Infocity campus of
Satyam in Hyderabad for the meeting, in which
the chairman of the board is expected to be
elected.
Raju to be treated like ordinary prisoner

Bharat Kumar, lawyer of Ramalinga Raju, speaks to the

media outside Satyam's head office in Hyderabad.
• Founder of Satyam Computer, B Ramalinga Raju, who lived
like a 'king' before admitting fudging of company accounts to
the tune of Rs 7,800 crore (Rs 78 billion), slept on the floor
of the Chanchalguda jail here like other ordinary prisoners.
• According to sources, the Raju brothers have been given the
status of 'C' class prisoners or undertrials.
• The Raju brothers had to sleep on a mat on the ground like
all other prisoners.
• They were offered the usual prison dinner of rice and rasam,
which the elder Raju refused, sources said.
Satyam CFO Vadlamani in custody

CFO Vadlamani Srinivas (R) being brought to the Chanchalguda prison

after his arrest in Hyderabad.
• Srinivas Vadlamani, the chief financial
officer of Satyam Computer, was
remanded to judicial custody till January
23 by the 6th Metropolitan Magistrate on
Sunday.
• He was later shifted to the Chanchalguda
central jail, where former chairman of
Satyam B Ramalinga Raju and his
younger brother Rama Raju have been
lodged since Saturday.
Ram Mynampati got more salary than Raju, directors!
• A prime prospect for probe by regulators and authorities investigating the
Satyam fraud, acting-CEO Ram Mynampati appears to be the IT
company's most valued asset and drew a salary more than that of founder
Ramalinga Raju and all the directors put together.
• At the same time, its independent directors, many of whom have quit
Satyam board after the Maytas fiasco on December 16, got at least Rs 1
lakh (Rs 100,000) a month as commission and sitting fees.
• Mynampati, who is now being questioned by the team of market regulator
SEBI, got a total package of over Rs 3.5 crore (Rs 35 million) during the
year ended March 2008, while founder and Chairman had to contend with
just about one fifth.
• A perusal of company documents reveals all the directors,
except Mynampati, got a total of Rs 2.6 crore (Rs 26
million) as salary, commissions, sitting fees, professional
fees and other receivables.
• What is surprising is the difference between the package of
Mynampati and all the others put together is about Rs 1
crore (Rs 10 million), almost the same that the second best
package that was given to independent Satyam director
Krisha G Palepu.
• After Mynampati the package for Ramalinga Raju totals Rs
60.4 lakh (Rs 6.04 million), followed by his brother Rama
Raju at Rs 44.07 lakh (Rs 4.40 million).
• The company paid a total of Rs 1.56 crore (Rs 15.6 million)
to its seven non-executive directors.
• Other than V P Rama Rao, who was on the Satyam
Board for just about a month, independent directors
got between Rs 12 lakh to Rs 13.2 lakh (Rs 1.2-1.32
million) a year.
• Harvard Business School professor Palepu bucked
the trend and got Rs 91.91 lakh (Rs 9.19 million) for
2007-08, which includes a professional fees of Rs
79.51 lakh (Rs 7.95 million).
 Nasscom advises against
poaching Satyam's clients
• While welcoming the reconstitution of the
scam-tainted Satyam board, the Nasscom
chairman Ganesh Natrajan said the apex
body had advised its members to desist
from making "unsolicited offers" to the
customers of the beleagured company,
which has earned the dubious reputation of
being 'India's Enron'.
• The IT industry in the country was "mature" enough to resist
such undesirable practices and poaching on the customer base
of Satyam, whose business continuity needs to be ensured, he
told PTI.
• The government had taken the right steps in the matter and
Nasscom was hopeful that new board with proven track record
of its directors would restore credibility of Satyam taking care of
the liquidity aspect and uninterrupted business schedules,
Natrajan said.
• It was important to ensure that in the outsourcing, customers did
not lose their faith in Indian companies, he stressed.
The main trading floor of the New York Stock Exchange.
 About a dozen lawsuits filed
against Satyam in US
• About a dozen lawsuits have been filed against Satyam Computer in
US courts, charging the Indian IT firm with duping thousands of
American investors out of billions of dollars.
• Asked about the specific damages sought in the lawsuit, law firm
Vianale & Vianale LLP's counsel Keneth J Vianale said that the sum
duped could be in hundreds of millions of dollars.
• Vianale said in an emailed statement to PTI: "We have not alleged a
specific damages amount that we are seeking. That will be a subject of
expert testimony.
• "However, in cases of this sort, it is not unusual for the damages to be
in the hundreds of millions of dollars."
• Another law firm Pomerantz Haudek Block Grossman & Gross said that it
"has commenced an investigation of the scandal on behalf of investor
clients, and is exploring the possible claims that can be raised, including
under the federal securities laws . . .
• ". . .and focusing on identification of possible defendants in addition to the
Raju brothers, such as outside auditors, and on the location of assets in this
country."
• After the scandal was revealed, trading in Satyam shares was halted by the
NYSE on January 7 and the stock exchange has said that it is assessing
whether the firm deserves to stay on the bourses.
• The trading could be resumed on Monday if its review is satisfactory, the
exchange said in a statement.
• In these lawsuits, Satyam Computer has been charged with duping
thousands of American investors by artificially inflating share price.
• While two lawsuits were filed on January 7, the day when
Satyam's founder-chairman Ramalinga Raju resigned after
disclosing massive financial irregularities to the tune of
over a billion dollar, so far there has been nearly a dozen
lawsuits that have been filed against the company.
• Earlier, nearly six law firms including Brodsky & Smith
LLC, Glancy Binkow & Goldberg LLP, Harwood Feffer
LLP, Sarraf Gentile LLP, Vianale & Vianale LLP and Izard
Nobel LLP had filed class action law suits against Satyam
Computer.
'Govt should protect Satyam employees'

A bunch of worried employees

• The Bharatiya Janata Party asked the Centre and
Andhra Pradesh government to take steps to protect the
interests of 53,000 employees and investors of the
scam-hit Satyam Computer.
• "The government of India and Andhra Pradesh
government should take all steps to protect the interests
of investors and the company's employees," senior BJP
leader Venkaiah Naidu said on the sidelines of the BJP's
Youth Rally in Chennai.
CAI asks PwC to explain Satyam account
• Chartered accountants body ICAI served a showcause notice on
auditor PriceWaterhouse and asked it to submit balance sheets of
Satyam Computer audited by it in the last five years.
• "We today served showcause notice on PriceWaterhouse and
asked it to reply within 21 days," Institute of Chartered Accountants
of Indiap resident Ved Jain told PTI.
• If the reply to the notice does not come by 21 days, all members of
PriceWaterhouse who audited the Saytam accounts could be
banned for life time, Jain said.
• The firm has also been asked to submit balance sheets, financial
statements and other relevant documents of Satyam Computer
audited by it for the last five years, he said.
• The audit firm has maintained that it followed applicable audit
standards and went by audit evidence provided by the company.
• The ICAI president said action against CAs, who audited the accounts
of Satyam Computer, can be expected in 2-3 months, if found guilty.
• Jain said Satyam founder Ramalinga Raju's statement that only he
knew about the financial wrong-doings did not look like the whole
truth, as he did not write the accounts of his company.
• Ramalinga Raju in a letter written to the company board admitted,
"...None of the board members, past or present, had any knowledge
of the situation in which the company is placed." Chartered
accountants body ICAI on Saturday served a showcause notice on
auditor PriceWaterhouse and asked it to submit balance sheets of
Satyam Computer audited by it in the last five years.
ver half-a-million people have stake in Satyam survival

K V Kamath, MD, ICICI Bank

• The big question on survival of Satyam Computer is giving
anxious moments not only to its over 50,000 employees but
also to over half-a-million people, who would get impacted
indirectly if the IT firm does not come out of the trouble,
Confederation of Indian Industry president K V Kamath said on
Saturday.
• Kamath said each of over 50,000 Satyam employees supports
a family of four. "Every white collar job creates four another
jobs. (So) you are talking about anything between half-a-million
to a million people, who could directly or indirectly have been
impacted by this single event," Kamath said.
• He said the crisis had such a social magnitude that
made the government act swiftly and save the
company.
• Besides CII, Assocham and Ficci have also
welcomed disbanding of the Satyam board of
directors by the government.
• They expressed hope that the move would help
restore investor confidence not only in Satyam but
in corporate India in general.
AP govt not involved in Satyam scam'
• Andhra Pradesh government was in no way involved in
the massive accounting fraud at Satyam Computer,
State Finance Minister K Roasaih has said.
• "The State government has nothing to do with the
Satyam Computer issue. The Centre was looking into
the issue," he told reporters in Vijayawada.
• The minister was responding to Opposition parties'
charge that the Congress government was involved in
the scandal at the Hyderabad-based software firm.
• "Instead of giving suggestions how to revive Satyam
Computer and protect the interest of its 53,000
employees, Opposition parties were making baseless
allegations against the government," Roasaih said.
• The '108' emergency services in the state, currently
maintained by EMRI Satyam Group Trust, would not be
affected in wake of the financial fraud, he said.
• Many philanthropists and organisations are coming
forward to support and run the emergency services
(which can be availed by dialing 108), the minister
added.
 'No delay in Satyam probe'

• The government said that there was no delay in acting

against the tainted founder of Satyam, B Ramalinga
Raju.
• "There would be no laxity against the guilty... So let us
not talk about any individual or the auditors (PwC) of the
company," Minister for Corporate Affairs Prem Chand
Gupta told reporters when asked what action would be
taken against Raju and auditors.
• "We are very clear and a co-ordinated action would
be taken," he said.
• The apex body of accounting firms Institutes of
Chartered Accountants in India has sought some
information from the auditors of the company and
Financial Reporting Review Board, the minister said,
adding that they can ask for working papers of the
audit and that has already happened. "Once that (the
papers) is received, ICAI will take its view," he added.