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Jan 18-edit

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Published by vrsrini
Sitaram Yechury, People's Democracy
Sitaram Yechury, People's Democracy

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Published by: vrsrini on Jan 16, 2009
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EDITORIALDeceit, Thy Name Is Capitalism
THE mega loot that describes the Satyam scam has exposed the systemicmalaise of the new IT economy that had tended to dominate India’s recenteconomic liberalisation trajectory. The colossal financial swindle withcooked up account books, surprisingly undetected for so many years, issimply unbelievable. The eventual confession of its prime owner that therevenues and profits were vastly exaggerated in the account books, appearsto mask a larger loot and swindle.The prime minister has asked the Serious Fraud Investigation Office (SFIO)to investigate the scandal and submit a report in three months. While thisneeds to be done, it should cover all aspects of the swindle and not confineitself only to the cooked up accounts. Satyam owner, Ramlinga Raju, hasconfessed that while the ratio of operating margins to revenues was justunder 3 per cent, they were shown as 24 per cent in the accounts – a swindleof over Rs 7000 crore.Elsewhere in this issue, the murky details are discussed and, hence, these arenot repeated here. However, it needs to be noted the false exaggeration of the health of the company and its profit margins contributed over the yearsin keeping the share prices of Satyam high on the stock market. Thus, byorchestrating a false high price, the sale of shares would have raked in unduesuper profits. By selling shares when the prices are high, the profits could beused to acquire real assets elsewhere. The more inflated the share values,the more such assets could be acquired. Between 2001 and September 2008(precisely the years of accounting fraud), the share of the stake held by theRaju family in Satyam fell from 25.6 per cent of equity in the company to8.65. This further fell to 5.13 per cent in January 2009 before Rajuconfessed his crime.This needs to be probed. Were the profits raked in by these sales used toacquire assets by the eight other Raju family companies, including MaytasProperties and Maytas Infra?Apart from probing the role of the company’s auditor, Price WaterhouseCoopers (who was also the auditor for the Global Trust Bank [GTB] thatwas involved in an earlier mega scam and had to be amalgamated with a
nationalised bank), the SFIO probe must cover all angles of how publicmoney was siphoned off by the family to acquire huge real assets. Inaddition, the largesse shown by the Congress state government of AndhraPradesh in allotting public lands to the companies belonging to the Rajufamily must also be probed. Naturally, there is a widespread concern regarding the welfare and future of the 53,000 odd employees of Satyam. There are reports of bailout packages being considered by the government to ensure that the employees willcontinue to get their salaries. While this needs to be done, it cannot,however, be done at public expense by using the tax payers’ money. As theaccompanying table shows, the three companies of the Raju family, under scanner, have humongous real estate assets. These must be confiscated andconverted into cash assets from which the employees’ welfare must besafeguarded.If the ethical norms of corporate governance are to be adhered to, then sucha colossal fraud and loot must be made to pay. Particularly so, in the case of Satyam which on two occasions (in 2002 and in 2008) bagged the prestigious “Golden Peacock Award” for corporate governance given by theWorld Council of Corporate Governance. In itself another mega fraud! Anaccompanying article in this issue exposes how the global system of cronycorporate capitalism is an accomplice in institutionalising such a globalfraud.In the past, following every mega scam – Harshad Mehta's, UTI scam,Khetan Parekh's, GTB etc the government stepped in with a bailout package in the name of protecting the common investor whose assets werewiped out by the loot. There is seldom any information on what happenedto the ill-gotten wealth acquired through such scams. In this case, thegovernment must not use the tax payers’ money for a bailout. If thenationalised banks are asked to forward liquidity in lieu of a bailout, thenthis must be accompanied by these banks acquiring a corresponding stake inthe company. In any case, confiscation of the assets of the company andusing them to safeguard the welfare of the employees and payingcompensation to the victims of this colossal loot is the best course available.Finally, it is high time that the prime minister and his cronies in the PlanningCommission live up to their, so far hollow rhetoric, of not wishing to

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