Satyam Chief Admits to US$1 billion Corporate Fraud
Jan. 8 – In a case that some may liken to the scamster Bernard Madoff, Chairman of India's fourth-largest IT company Satyam, Ramalinga Raju resigned from his post and admitted to gross misrepresentation of the companies balance sheets. Satyam which is listed on both the Bombay Stock Exchange and the New York Stock Exchange admitted to being involved in the country's biggest corporate fraud involving about Rs 8,000 crore (US$1.6 billion).
Following the inflation of profits and assets, investors in Satyam Computer Services Ltd's American Depositary Receipts (ADRs) have filed two class action suits against the Indian software services firm. The company has been audited by PricewaterhouseCoopers since its listing on the New York Stock exchange.
On Wednesday in a confession to the Bombay Stock Exchange Mr Raju, admitted that 50.4 billion rupees, or US$1.04 billion, of the 53.6 billion rupees in cash and bank loans the company listed as assets for its second quarter, which ended in September, were nonexistent. He also said Revenue for the quarter was 20 percent lower than the 27 billion rupees reported, and the company’s operating margin was a fraction of what it declared.
The scam would have gone unnoticed if it wasn't for investors in the company that didn't let Satyam acquire Maytas, a real estate firm owned by Raju’s family. Maytas, was proposed to be bought over by satyam for Rs Rs 6,400 crore (US$131 million), which would have helped clean up the book subsantially. Since Satyam would have to pay Maytas owners (the Raju family) for its shares, on paper Rs 6,400 crore would have moved out of Satyams books into the Raju family’s hands, while Satyam would have gained Maytas shares.
Satyam's clients include some of the largest banks, manufacturers, health care and media companies in the world, handling everything from computer systems to customer service. Clients have included General Electric, General Motors, Nestlé and the United States government.
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