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Raju Raju sat on the wall

Raju Raju had a great fall

Balance sheet diedShareholders cried

Raju Raju made a fraud

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j j

In the broadest sense, a fraud is anintentional deception made for personal gainor to damage another individual; the related

adjective is fraudulent.

FRAUD


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THE SATYAMSCANDAL


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Set up in the year 1987 by B.Ramalinga Raju.

Indias 4th biggest software company.

On 26th August, 1991 it was converted into a

Public Limited Company and went for PUBLICISSUE in 1992.

BSE IPO oversubscribed 17 times when madepublic.

SATYAM


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Satyam faced is the biggest fraud in India'scorporate history.

The company management, mainly disgraced

chairman B Ramalinga Raju, kept everyone in thedark for a decade.

The Fraud


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Why on 7th Jan 2009?

DSP Merrill Lynch informed SEBI about

Material irregularities in Accounts on 6th Jan

Minutes of Meeting of 16th December,2008were not submitted to RoC-(This createdsome doubts)

Hearing of Upaid- satyam case on 8th Jan atthe US court


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On 7 January 2009, companys previous ChairmanRamalinga Raju resigned after notifying boardmembers and the Securities and Exchange Board ofIndia (SEBI) that Satyam's accounts had beenfalsified.

1. Inflated figures for cash and bank balances ofRs 5,040 crores as against Rs 5,361 crore reflected in

the books.

2.An accrued interest of Rs. 376 crore which was non-existent.

3. An understated liability of Rs. 1,230 crore onaccount of funds was arranged by himself.

4. An overstated debtors' position of Rs. 490 crore (as

against Rs. 2,651 crore in the books.


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ACTUAL CASH IN

BANK WAS 321CRORES,

INFLATED 5040CR.

NO ACCRUEDINTEREST 376.34

CR.


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UNDERSTATEDLIABILITY 1230Cr. Which wasARRANGED BYMR.RAJU

5,040 + 376 +490 (Rs. Cr)

Rs. 1,230 Cr Rs. 7,136Cr


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Who foundIrregularities

Investment banker DSPMerrill Lynch was appointedby Satyam to look for apartner or buyer for thecompany.

DSP Merrill terminated itsengagement with thecompany soon after it foundfinancial irregularities.

Merrill Lynch also sent theinformation and the reasonfor their termination of thecontract to the Bombay

Stock Exchange, SEBI andeven the New York Stock


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The guilty


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The promoters

Since the promoters, in thiscase, held only about 8percent shares, their ideato push through the Maytasacquisition deal wasdefeated by an angry lot ofshareholders.


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Directors and independentdirectors

The Satyam board, including itsfive independent directors hadapproved the founder's proposal tobuy 51 per cent stake in Maytas

Infrastructure and all of MaytasProperties, owned by the familymembers of Satyam chairman BRamalinga Raju.

Despite the shareholders not beingtaken into confidence, the

directors went ahead with themanagement's decision. The decision of acquisition was,

however, reversed 12 hours laterafter investors dumped Satyam'sstock and threatened action

against the management.


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The government

The government too isequally guilty in not havingmanaged to save theshareholders, theemployees and someclients of the companyfrom losing heavily.


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Stakeholders Model

SATYAM

Shareholders

Directors

Customers

Employees

Competitors

Public


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Employees

It is nights and heartburns for the over53,000 employees of SatyamComputers as they conjure up worstcase scenarios like non-payment ofsalaries, project cancellations , layoffs

and equally bleak prospects outside.As the company's management tries to

reassure shocked employees, jobssites have got flooded from resumes ofhundreds of Satyam employees.

Job consultants believed that in the

current economic climate , Satyamemployees might have to settle forlower salaries outside.

It is an employers' market.


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Shareholders

An accounting fraud was the lastthing investors in India wouldhave imagined as a trigger for areversal in investor sentiment.

This scam is likely to affect theimage of Indian companiesamong foreign portfolio investors.

The share prices of Satyam saw asharp fall after Rajus confession.

The share prices fell down from190 to 30 (approximately) in amatter of a day.
http://www.businessweek.com/globalbiz/content/jan2009/gb2009018_463887.htm


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Clients

Satyam Computers clientsinclude General Electric,Nissan Motors and GeneralMotors.

The debacle(sudden downfall)

may force the clients to reviewtheir contracts and look atother offshore suppliers.

Australian telecom companyTelstra, had already decided to

split a new contract worth $200million among three Indianvendors.

Another partner and customer ofthe company, Cisco Systems

said that a proposedinvestment in Sat am Global


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Public

The incident has hurtpublic perception of

Corporate India and islikely to hurt

shareholders'confidence in India Inc.

It resulted inincalculable and

unjustifiable damage toBrand India and Brand

IT in particular.

It is likely to dent the

public credibility aboutthe concepts of

corporate governance inIndia


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Competitors

The competitorswere mainly

benefited positivelyfrom this scam.

The Satyam Scam

was also lesson tolearn for the other

organisations in

the IT sector

Competitors


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Mahindra Satyam

Tech Mahindra paid Rs1757Crorefor a 31% stake in thecompany, at Rs 58 per share.

Satyam Computer Serviceszoomed 15% to Rs 54.20ahead of theannouncement of the highest

bidder for the company on April13, 2009.

In India this moment was full ofpraise for the manner andspeed with which the

reconstituted board of Satyam


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New policies 1.1 Compliance with Laws, Rules and

Regulations.

2.1 Legal, Honest and Ethical Conduct.

2.4 Suspected Fraudulent behavior.


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What HasIndia learnt?

Audit committees are being more careful toensure that the external auditors perform theirrole more diligently. We also find that the

chairman of the board and members of the auditcommittee are being more careful and thoroughin their questioning. Boards, too, are taking careto ensure that there are no slip-ups at their end.


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THANK YOU

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