The

Satyam
Scandal

Group 1
Current Awareness
MBA 2010-12
Section ‘B’
 About Satyam
Satyam, a SEI-CMM Level 5 company, offers a range of expertise in the
areas of Information Technology Software Development Services, Systems
Integration, ERP Solutions, Product Development, Internet access & hosting
services, Electronic Commerce and Consulting. Satyam has nearly 6,000 IT
professionals, who operate out of its state-of-the-art software development centers
located in India, the USA, Japan, Singapore and the UK. These Centers work as an
extended enterprise (IT partner) for over 150 Fortune 500 and multinational clients
worldwide. Satyam, a multifaceted, totally integrated IT solutions provider is
engaged in application development and maintenance, systems integration,
datamarts, conversion and migration, Euro currency and engineering
services(CAD,CAM,CAE).
It specializes in customized IT solutions for industries in the areas of
Manufacturing, Financial services, Insurance, Transportation, Telecom, Healthcare
and Power. The company also offers Network and network-enabled services in
India. It provides Internet access & hosting services, Intranet, e-mail, EDI, store &
forward, and online information services.
 A Sudden Blow
Yes, a sudden blow to the corporate
industry on 7th of January 2009 at 10:53 AM, that
[Link] Raju, the founder and chairman
of Satyam Computer Services Ltd., sent a fax to
the
(i) Chairman SEBI
(ii) Board of Directors, Satyam Computer
Services Ltd and
(iii) Stock Exchanges
 What was in it?
The fax, a five-page letter written by
Mr. [Link] Raju, the founder and
chairman of Satyam, revealed facts that there
took place falsification of accounts. He also
stated that he was solely responsible for the
crime and none of the others, including the
managing directors and his near and dear are
unaware of the matter.
The Three Phases of Satyam Scam
An analysis of the report by the Serious
Fraud Investigation Office (SFIO) on the swindle at
Satyam Computer Services Ltd shows manipulation
of software, and lack of audit controls and systemic
review. The fraud can be divided into three phases.
Phase I: For nearly three years since 1999, the
firm rode on the Y2K phenomenon, which saw
India’s software industry get huge orders and earn
good profits.
The Three Phases of Satyam Scam
Phase II: The second phase began in 2001. According to
the SFIO report, the falsification of accounts started then
to keep Satyam’s share price high. The company had gone
public in 1992.
Riding on the high price, Satyam promoters
offloaded their shareholding in the market and used the
proceeds to buy land. In fact, founder B. Ramalinga Raju
had set up as many as 374 infrastructure firms and eight
investment companies to help him become a land baron,
the report has found. This phase continued till 2004, which
was when things started going wrong.
The Three Phases of Satyam Scam
Phase III: The third and final phase started
sometime in mid-2007 and continued till
Raju’s confession on 7 January 2009. During
this period, the company showed huge cash
balances and fixed deposits in several banks of
international repute. It was, however, actually
starved of funds and the promoters were
desperate to raise money to keep the
company afloat.
 Behind the Screen…
On 18 December 2008, two days after the Satyam board met and decided to
acquire two group firms—Maytas Infra Ltd and Maytas Properties Ltd—independent
director Krishna Palepu received an anonymous email.
• The writer went by an alias, Joseph Abraham, and has been declared the whistle blower in
the case. This email laid bare the fraud.
• Palepu forwarded the email to another independent director, M. Rammohan Rao, who
chaired the Satyam audit committee. Rao forwarded this email to S. Gopalakrishnan,
partner at Price Waterhouse, the company’s auditors.
• Gopalakrishnan told Rao over phone that there was no truth to the allegations and
assured him of a detailed reply in a proposed presentation before the audit committee on
29 December.
• That meeting never took place. A new date—10 January—was fixed.
• Raju knew the clock was ticking for that audit meeting could have seen the committee
members pose tough questions. Raju had not taken Rao’s calls seeking an answer to the
allegations in the whistle blower’s email.
• Three days before the meeting, Raju confessed to India’s biggest corporate fraud.
 The Accused Surrender
On 9th January 2009, the Satyam Chairman B
Ramalinga Raju surrendering before the
Andhra Pradesh police under sections
120B(Criminal Conspiracy),409, 420(Cheating),
468, 471. Along with him his brother and the
company’s CFO were also arrested on the
same day. The Securities and Exchange Board
of India [SEBI] has ordered for an enquiry to
look into this matter in detail.
 Effect on Stock Prices
Along with this news, the most important
point would be the stock prices dipping more
and reached 6 Rs/share which is seriously very
low considering it was trading it 400-500Rs
levels a year back. The stock prices clearly
shows that the company has lost its value
among the investors and everyone is looking to
sell out.
 The Proceedings
The Progress in the case as on Jan 20 2009: The Serious Fraud
Investigation Office will probe also Maytas infrastructure as part of the Satyam
financial scam probe.
• Corporate affairs minister P C Gupta said on Jan 19 2009 that initial investigations
suggest a clear nexus between Satyam, Maytas properties and Maytas
infrastructure.
• Earlier, the Andhra High Court dismissed Ramalinga Raju's revision petition
against his police custody. But SEBI still did not get to question Raju on Monday
as a court order on the body's petition to question him was postponed till January
22.
• Meanwhile the CID is questioning the Raju brothers and former Satyam CFO
Vadlamani Srinivas .
• They are also looking into their e-mails and phone records over the last one month.
• Meanwhile, Andhra chief minister Y S R Reddy reiterated his government did not
flout any rule in awarding the Hyderabad metro rail project to Maytas.
 The Takeover by Tech Mahindra
After four months after the massive accounting
scandal was made public, Tech Mahindra Ltd. Placed the
highest bid to acquire Satyam Computer Services Ltd., On
13 April 2009.
The takeover bid is only a month after Satyam
announced it was up for sale. Tech Mahindra bid Rs 58 per
share, above what Larsen & Toubro and billionaire tycoon
Wilbur Ross offered.

Tech Mahindra will own 31% of the IT mammoth at a cost

After four months after the massive accounting scandal

Tech Mahindra will own 31% of the IT mammoth at a cost