Satyam Scams

Presented By
Mohil Kapoor
Kshitij Kumar
Syed Azhar
Sumit Kumar Goel
Harvinder khanduja
Elizabeth Merin Mathew
Neethu K A
Leeza Ben Joseph
Mishel Elizabeth Jacob
 SATYAM
• Set up in the year 1987 to provide
services in IT sector
• India’s 4th biggest software
company in India
• It is listed in BSE, NSE, NYSE and
Euronext (Amsterdam).
• BSE IPO oversubscribed 17 times
when made public in 1991
• The company employs 53,000 IT
professionals across development
centers in 6 continents
 First IT Company in the World
Certified under ISO9001:2000
 Ranked Among India’s Top 10
Best Employers, 2004 and 2003
 Top 13 Best-Managed
Companies in India
 Winner, Corporate Citizen I
award for Corporate Social
Responsibility
 SAP Pinnacle Award 2008 
 Satyam Wins golden peacock
award for excellence in Corporate
Governance on Global level for 2nd
time
 United Kingdom Trade and
Investment India Business Award
for Corporate Social Responsibility
> Chairman and founder Satyam
Computers Services Limited
> MBA from Ohio University
> IT man of the year award by Data Quest
in 2002
> Winner of Ernst & Young entrepreneur
of the year award in 2007
B. Ramalinga Raju
Founder & Chairman, Satyam
Computers Ltd.

> He became the Managing Director and

Chief Executive Officer in 1991
> Mr. Rama Raju holds a Master of
Economics degree from Loyola College,
Chennai and a MBA degree from Loredo
State University, Texas
> Before 1997, he was with Maytas Infra
Limited as one of its Directors
B. Rama Raju
Promoter & CEO, Satyam Computers
Ltd.
 Satyam Clients

A total of 650+ Clients

185 of the top fortune 500
Companies
 Satyam Board Structure
Other
B.Rama Raju B.Ramalinga Raju
Promoter & CEO Independent
Promoter &
Directors Chairman

Ram Mynampati Srinivas Vadlamani

Whole time Chief Financial
Executive Director Officer

Dr M.
Srinivasan Prof. Krishna Mr. Vinod K Prof. M Mr. T R
G Palepu Rammohan Prof. V S Raju
Dham Prasad
Rao

GTB/Dr. Sasken Communication/ ISB Dean/

Hellsoft /Montalvo Systems Bharat Former
Reddy’s
and Newpath electronics CabinetSecretary /GMR
Laboratories
Infra/ GVK Taj
 Satyam – Share holding Pattern

Institutional & Non-

Institutional Shareholders

LIC 4.34%
L&T 4%
Lazard
Aberdeen 13.16%
Fidelity
ICICI Prudential
Citigroup
JP Morgan
Total Market capitalization was Rs.
15,262 Cr
(still Dec 16, 2008 )
Satyam Decade at a Glance
 Maytas
Mr. Teja Raju(VC)
• The Raju’s hold 36.64 per cent while
institutional holding is 10.92 per cent
• The company had raised Rs 327.45 crore
through IPO.
• It had a turnover of Rs 1,660 crore and net
profit of Rs 100 crore in financial year 2008-
2009.
• Satyam planned to acquire 51 per cent stake
for Rs 1, 440 crore or $0.3 billion
 Maytas Properties
B. Rama Raju Jr. (VC)

• Raju’s family owns 35% of Maytas properties

• Founded in 2005, it has a land bank of 6,800
acres
• It was having clearances for three IT SEZs based
on 148 acres
• An undisclosed stake is held by Infinite India
Investment Management, a realty fund jointly
promoted by JM Financial and US-based SRM
Investments, which invested Rs 600 crore in
February
So, How did it all begin?
 Time-Line
21 April 26 Jan
2008 2009

22 Sep
2006
2008

Satyam receives the Golden

Peacock Award for excellence in
Satyam becomes first Corporate Governance from World
Indian company to council
publish International
Financial Reporting
Satyam Standards (IFRS)
revenues audited financials
cross $1
Billion
 Time-Line
16 Dec 17 Dec 26 Jan
2008 2008 2009

Satyam gets board

approval for Satyam backs out of
controlling stake in Maytas deal citing
Maytas Infrastructure investors protest
and Maytas
properties as fully Major Clients of
owned subsidiary for Satyam express
$1.6B (Rs. 8000 Cr.) dissatisfaction.
Contracts worth
$200 million up for
grabs

Satyam shares plunge Board meeting to be

55 percent in NYSE. held on Dec 29 for
BSE share plunges over proposed buyback of
30% shares
 Time-Line
19 20 23 206Jan
Dec Dec Dec 2009

British mobile solution World Bank bans Satyam for 8 years

provider Upaid files a law suit
against Satyam in a district
Court in the US over Maytas
deal. May face $1 Billion in
penalties
due to inappropriate payments to
staff and inability to provide
information sought on invoices

Centre refers
Satyam deal
to Registrar of
Companies
(RoC)
 Time-Line
26 28 29 26 Jan
Dec Dec Dec 2009

3 more Independent Directors resign.

Mendu Rammohan Rao, Krishna G
Board meet initially Palepu and Vinod K Dham
scheduled for 29th
postponed to 10th
1st independent January
director Dr.
Mangalam Board announces
Srinivasan exploring option Satyam asks DSP Rumors in market
resigns from for buyback of to review board about strategic
Satyam board shares to restore structure takeover by IBM,
investor Accenture
Satyam objects confidence
to world bank IL&FS sells 44.1 lakh shares
statements, Promoters disclose that their pledged shares of Satyam
asks to entire holding in Satyam promoters in 1 day.
apologies or
face legal action
pledged with institutional Promoters equity reduced
lenders since 2006 from 8.6% to aprrox 7%
 Time-Line
30 02 03 26 Jan
Dec Jan Jan 2009

Post cancellation Satyam board confirms

of deal, Maytas promoters stake to be
looks for raising around 5%. Further 3.2% still
IL&FS sells pledged.
$500 million
further 44.27 Lakh
through sale of
pledged shares
equities and
taking the tally to
properties
1.5 crore pledged
shares

Satyam-Upaid case
hearing over the
Maytas deal in Texas
court on January 8.
 Time-Line
05 06 26 Jan
Jan Jan 2009

Total pledged shares sold by
IL&FS reaches 2.5 Cr. in last
13 days. Promoters stake
Promoters stake in down to 3.6%. Still a further
the company down 1.7% are pledged
to 4.5%
Tech Mahindra
(Revenues 3766 Cr.)
offers to merge with
Satyam (Revenues 8473
Cr.)

The Night Before 7th Jan

SEBI considers
proposal to make it Merill Lynch discovers serious
mandatory for irregularities in books of
promoters and accounts and approaches
majority share regulator SEBI for further
holders to disclosed course of action and its inability
pledged shares to to investigate further. DSP
stock exchange submits report to SEBI and
Satyam management late night.
 Time-Line
07 26 Jan
Jan 2009

09:45 A.M. ADR’s crash 90% Hunt for Raju brothers

Satyam Chairman Satyam BSE scrip falls 78% begin. Amid speculation
Ramalinga Raju wrote over his whereabouts, 
letter to the company Raju is believed to have
board DSP snaps ties with left for the United States
satyam. in connection with a court
case.

Auditing firm PWC under Ram Mynampati takes

scanner over as interim CEO Satyam stripped of Golden
according to Raju’s letter Peacock award

Govt. instructs RoC to

review report NSE removes Satyam from its benchmark index Nifty.
 Time-Line
08 09 10 26 Jan
Jan Jan Jan 2009

BSE to replace Satyam

PwC in major
Computer with Sun Former CFO
trouble. Stocks of
Pharmaceutical in its Valdamani Srinivas
PwC clients take a
benchmark index remanded to judicial
major beating at
Sensex with effect from custody
the BSE and NSE
January 12.

CFO Valdamani Srinivas, Raju brothers arrested by the police on

who is the financial charges of criminal conspiracy,
custodian of the cheating, forgery, misappropriation of
company resigns funds and criminal breach of trust.

PwC shot back at Satyam, saying in

a media statement that the auditing
was based on the audit evidence
provided by Satyam and in was
accordance with applicable
standards. 
Market Capitalization of satyam falls to Rs.
1,607 Cr from Rs.15,262 Cr. on Dec 16 in 19
trading sessions.
 Time-Line
13 14 15 16
26 Jan
Jan Jan Jan Jan
2009

Government
hands satyam case 23 year old Maytas stocks
to SFIO employee of satyam hit the lower
commits suicide in circuit for 7th
Chennai consecutive
trading session

The newly appointed 3 member

board appoints auditing firm KPMG
and Delloitte to assist it in cleaning
the mess in the scam tainted
company’s accounts
The government expanded the three-
member Satyam board to six to include S
Balakrishnan of Life Insurance Corporation,
Tarun Das, chief mentor of the
Confederation of Indian Industry and T N
Manoharan, former president of the
Institute of Chartered Accountants of India
 Why on 7th Jan 2009?
• DSP Merrill Lynch informed SEBI about
Material irregularities in Accounts on 6th Jan

• Minutes of Meeting of 16th December,2008 were

not submitted to RoC-(This created some doubts)

• Hearing of Upaid- satyam case on 8th Jan at the US

court
 Raju ban gaya conman……How?

• Proposing High risk Maytas acquisition

• Overvaluing the proposed acquisition

• Promoter pledging their holdings (decrease in holding)

• Refusing to resign

• Fudging Income statement

 Maytas Acquisition
• Valuation of Maytas duo was done at $1.6 bn
as against actual $ 225 mn

• Violation of Section 372A of the Companies act

Rs.1,281.8
Rs.7,920
Rs. 2,163.7
Cr Cr
Cr
 Fabricated Income Statements

‘Creative Account Practice’

• Details of cash balances with Scheduled banks are not there in the
Annual report

• Question raised by Equity analyst Kawaljeet Saluja -$500 mn cash

parked in current account
 5,040 + Rs.
376 +
470 (Rs.
Rs. 1,230 Cr 7,136
Cr) Cr
Understated Liabilities
Fraud Amount
Overstated cash
balances, Income
receivables
 Why and How ????
Investment
To keepin
Real estate
EPS Banks)
(Land high

Sol
d
his
sta
ke
at
in
fla
te
d
pri
ce
(M
ad
e
Rs.
2,0
65
cr
fro
m
sh
ar
es)
 Share Pledging

• Stake decreased from 21.6% to 3.6%

• Money raised through 4 Front run Co. by
offloading pledged shares (under
investigation)
Amount (In Rs. Cr)

Harangi Agro
Narayandri Greenfields
Amravati Greenlands Amount (In Rs. Cr)

Bangar Agro

0 50 100 150 200

Fake FD receipts and Employee Nos.??

Take FD
The money has
already receipt
vanished
Tell to Banks FD
receipt is Lost

At the end show

the original FD
receipts

Ask for
Repeat the Duplicate
procedure Receipts
Park the Money
in other Bank Use the Duplicate
to Withdraw
money
Parallel Finance Department ???
Mr. Raju

PWC
Auditors

RamaKrishna
VP Finance
 Satyam-Maytas Nexus Contd…..
• Cash raised & siphoned off funds used to buy
several thousands of acres of land across AP
through several benami accounts

• Helped Maytas in getting major contract

STOCK CHARTING
Comparison – Satyam and Maytas share prices
 The Inside News
• Satyam's CFO Srinivas Wadlamani has sold around
8,00,000 shares & even Satyam's interim CEO,
Maynampati has sold 4,00,000 shares in past 6
months above Rs 300 per share.
• Satyam’s top 40 officials collectively sold shares
worth more than Rs 300 crores in the past 6 months
Role of Auditor

• According to law there should be an external

and an internal auditor(can be outsourced)
• Job is to check whether processes are being
followed and are accurate and adequate
• One of the key audit test is to validate firm’s
cash and bank balances(what was PwC doing)
 What went wrong
• Manipulation of software
• Lack of audit controls and
• Systemic reviews
• Insider trading
 Regulations post Satyam
• SEBI requires at least half of the directors in the boards of
publicly held companies to be independent.
• SEBI prohibits insider trading and has in place a strong
mechanism against it .
They keep track of the following:
•  Details of acquisition of 5% or more shares in a listed
company
• Details of shares held by Director or officer of a Listed
company
•  Details of change in shareholding in respect of persons
holding more than 5% shares in a listed company
•  Details of change in shareholding of Director or Officer of a
Listed Company
 Regulations(contd.)
• Compulsorily appoint external auditors to do internal
audits
• These auditors are also allowed to restate the profits
if required
• Mandatory for companies to disclose the percentage
of promoter shareholding that is encumbered
 HOW DID THE SCAM MATTER TO THE
NATION ?
• JOB’S OF OVER 50,000 TECHNOCRATS WERE
AT RISK

• COUNTRY’S BOOMING ECONOMY FEARED

SLIGHT COLLAPSE AS COUNTRYS GDP FELL BY
ESTIMATED 0.4%

• INDIA’S IT SECTOR SUFFERED DOWNTURN AS

IT’S IMAGE WAS TARNISHED GLOBALLY
 IMPACT ON STOCK MARKET

 News of what is possibly the country's biggest corporate

fraud, sent the indices tumbling.

 The benchmark Sensex slipped over 7% on Wednesday, 7

January 09. Companies perceived to have poor
corporate governance standards were most affected.

 The company’s share price has fallen 21.3 per cent since
December 15, the day before the crisis broke.
In the News..
 Lessons learnt
• It is a collective failure of directors, auditors and
regulatory agencies in ensuring transparency and
accountability; As a consequence of this fiasco,
the overseas client may take a hard look at most
Indian outsourcing companies and investment
flows could be hit. 
• The responsibility for preventing fraudulent
activities lies with the Board of directors. Their
acts and conduct impact the reputation of India
and, therefore, they must ensure that the highest
standards of corporate governance are set.
 Lessons learnt( contd.)
• The Quality Review Board ('QRB'), an independent body set up
under the MCA, is looking into the standards of audit for
chartered accountancy firms with a view to redefine new
stringent norms for audit firms. It may ask the SEBI and MCA to
mandate listed companies to rotate their auditors to prevent
Satyam-type frauds - practice being followed in public sector
companies.
• There is a need of time to take the investigation procedure in
effective and efficient way to clear every issue and make it sure
that such incident will not happen again in future, it is necessary
to solve the above questions and to fill the gaps of the loopholes.
Thankyou