Satyam Fraud

It was audacious, preposterous, outrageous and shocking event the Satyam

Computer-Maytas deal. That a promoter, with less than 9 per cent stake in his
company, would have the nerve to try and transfer $1.6 billion of cash to two
completely unrelated businesses owned by his sons is unthinkable. And to pass that
off as a 'wonderful' opportunity! Satyam. Chairman Ramalinga Raju says he didn't
anticipate investors' reactions and was surprised.
It is not a mere coincidence that Maytas is Satyam spelt in reverse way (Satyam Maytas). As it became evident from Rajus letter it was basically an effort to cover-up
Satyam fiasco.
The figures stated in the resignation letter of Raju relating to Satyam:
Inflated ( non-existent) Cash and Bank balance of Rs. 5,040 crores
An accrued interest of Rs. 376 Crores which is non-existent
An understated liability of Rs. 1,230 Crores
An over stated debtors position of Rs. 490 crores
Total Rs. 7136 crores!

It all started on 16.12.2008, when Ramalinga Raju felt that the only way to cover up
the scale of fraud perpetrated was through buying the infrastructure companies
owned by his sons and family members. It is a common affair in Indian Inc to make
such pointless investments to divide the dividends by manipulating profit margins.
But the scale of this scam needs to take a deeper look in the fiasco Satyam created.
Satyams Maytas bid dragged media in to it.
Satyam intended to buy entire stakes in Maytas Properties for $1.3 Billion and 51%
stakes in Maytas Infra for another $300 Million. Raju and his immediate family
members own up to 35% stakes in Maytas. The deal was to be financed from
surplus cash.
Investors and the Fund managers were shocked that the bidding process was carried
without informing them. Raju said that the deal was in complete interest of the
investors and informing them was unnecessary.

On following days, Satyams share prices started falling reflecting share holders
disbelief. Satyams share prices nosedived in U.S.A. after the bid was announced.
The interrogation by investors forced Raju to reconsider his decision, which he had to
reverse within hours.
World Bank, one of Satyams esteemed customers banned it from providing service
for next 8 years. Satyams image in front of its customers, investors, and more
importantly, the entire nation got dented.
Share prices tumbled even further. The aborted buy-out deal and the ban indicated
that something seriously went wrong at the board level. Valuation of Maytas turned
out to be fraudulent. All of the four Firms, including Merrill Lynch and JP Morgan
denied having done any Valuation. The move sparked row between the institutional
investors from across the world and Satayms board members. Ultimately lawsuits
followed valuation and now judicial custody of Ramalinga Raju and his brother.
One of companys two independent directors T.R. Prasad defended the decision of
buy-out believing it to be increasing share value. Another director M. Shrinivasan
quit before it was too late. Vinod Dham (fouder of Pentium) was also one of the
non-executive directors of Satyam who later resigned in the wake of controversy.
Two days after the controversial deal, Indian government ordered separate probe in
to the matter
On 7th January, Ramalinga Raju wrote a letter to all the board members and SEBI,
informing them about inflated cash, faked profit margins and accounting
malpractices

Chronological summary of events which

Computer Services on its path to disaster:

saw

Satyam

2008
December 16
Satyam gets Board's approval for acquisition of Maytas Infrastructure and Maytas Properties for $1.6
billion (Rs. 7680 crores)
December 17
Defers Maytas' acquisition on stiff investor resistance.
December 18
Schedules board meet for the proposal of buyback of shares on December 29.
British mobile solution provider Upaid files a law suit against Satyam in a district Court in the US over
Maytas deal.
December 24
World Bank bans Satyam for 8 years on charges of data-theft.
December 25
Mangalam Srinivasan, non-executive and independent director resigns from board.
December 27
Postpones board meeting to January 10, 2009 to consider buyback of shares.
December 27
Promoters disclose that their entire holding in Satyam pledged with institutional lenders since 2006.
December 28
Two independent directors - Krishna G Palepu, Vinod K Dham - resign from the board.
December 29
M Rammohan Rao, another independent director, resigns from board.
2009
January 2
Promoter holding in Satyam drops to 5.31 per cent from 8.27 per cent after sale of pledged shares by
lenders.
January 6
IL&FS Trust company sales 2.45 crore shares of Satyam pledged to institutional investors by the
promoters
January 6
Raju family holding in Satyam falls to 3.16 per cent after sale of pledged share by lenders
January 7
Satyam Chairman Ramalinga Raju sends letter to board tendering his resignation and admitting to
fraud in accounting books.
Satyam Managing Director B Rama Raju also resigns.
DSP Merrill Lynch terminated its advisory engagement with company.