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On 7 January 2009, company Chairman Ramalinga Raju resigned after notifying board members and the Securities and Exchange Board of India (SEBI) that Satyam's accounts had been falsified. Raju confessed that Satyam's balance sheet of 30 September 2008 contained:
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inflated figures for cash and bank balances of 5,040 crore (US$1.09 billion) as against 5,361 crore (US$1.16 billion) reflected in the books. an accrued interest of 376 crore (US$81.59 million) which was non-existent. an understated liability of 1,230 crore (US$266.91 million) on account of funds was arranged by himself. an understated debtors' position of 490 crore (US$106.33 million) (as against 2,651 crore (US$575.27 million) in the books).
Raju claimed in the same letter that neither he nor the managing director had benefited financially from the inflated revenues. He claimed that none of the board members had any knowledge of the situation in which the company was placed. He stated that: What started as a marginal gap between actual operating profit and the one reflected in the books of accounts continued to grow over the years. It has attained unmanageable proportions as the size of company operations grew significantly (annualized revenue run rate of 11,276 crore (US$2.45 billion) in the September quarter of 2008 and official reserves of 8,392 crore (US$1.82 billion)). As the promoters held a small percentage of equity, the concern was that poor performance would result in a takeover, thereby exposing the gap. The aborted Maytas acquisition deal was the last attempt to fill the fictitious assets with real ones. It was like riding a tiger, not knowing how to get off without being eaten.
Raju had appointed a task force to address the Maytas situation in the last few days before revealing the news of the accounting fraud. After the scandal broke, the thenboard members elected Ram Mynampati to be Satyam's interim CEO. Mynampati's statement on Satyam's website said: "We are obviously shocked by the contents of the letter. The senior leaders of Satyam stand united in their commitment to customers, associates, suppliers and all
shareholders. We have gathered together at Hyderabad to strategize the way forward in light of this startling revelation." On 10 January 2009, the Company Law Board decided to bar the current board of Satyam from functioning and appoint 10 nominal directors. "The current board has failed to do what they are supposed to do. The credibility of the IT industry should not be allowed to suffer." said Corporate Affairs Minister Prem Chand Gupta. Chartered accountants regulator ICAI issued show-cause notice to Satyam's auditor PricewaterhouseCoopers (PwC) on the accounts fudging. "We have asked PwC to reply within 21 days," ICAI President Ved Jain said. On the same day, the Crime Investigation Department (CID) team picked up Vadlamani Srinivas, Satyam's then-CFO, for questioning. He was arrested later and kept in judicial custody. On 11 January 2009, the government nominated noted banker Deepak Parekh, former NASSCOM chief Kiran Karnik and former SEBI member C Achuthan to Satyam's board. Analysts in India have termed the Satyam scandal India's own Enron scandal. Some social commentators see it more as a part of a broader problem relating to India's castebased, family-owned corporate. Immediately following the news, Merrill Lynch now a part of Bank of America and State Farm Insurance terminated its engagement with the company. Also, Credit Suisse suspended its coverage of Satyam. It was also reported that Satyam's auditing firm PricewaterhouseCoopers will be scrutinized for complicity in this scandal. SEBI, the stock market regulator, also said that, if found guilty, its license to work in India may be revoked. Satyam was the 2008 winner of the coveted Golden Peacock Award for Corporate Governance under Risk Management and Compliance Issues, which was stripped from them in the aftermath of the scandal. The New York Stock Exchange has halted trading in Satyam stock as of 7 January 2009. India's National Stock Exchange has announced that it will remove Satyam from its S&P CNX Nifty 50-share index on 12 January. The founder of Satyam was arrested two days after he admitted to falsifying the firm's accounts. Ramalinga Raju is charged with several offences, including criminal conspiracy, breach of trust, and forgery. Satyam's shares fell to 11.50 rupees on 10 January 2009, their lowest level since March 1998, compared to a high of 544 rupees in 2008. In New York Stock Exchange Satyam shares peaked in 2008 at US$ 29.10; by March 2009 they were trading around US $1.80.
The Indian Government has stated that it may provide temporary direct or indirect liquidity support to the company. However, whether employment will continue at precrisis levels, particularly for new recruits, is questionable. On 14 January 2009, Price Waterhouse, the Indian division of PricewaterhouseCoopers, announced that its reliance on potentially false information provided by the management of Satyam may have rendered its audit reports "inaccurate and unreliable". On 22 January 2009, CID told in court that the actual number of employees is only 40,000 and not 53,000 as reported earlier and that Mr. Raju had been allegedly withdrawing INR 20 crore rupees every month for paying these 13,000 non-existent employees . New CEO and special advisors On 5 February 2009, the six-member board appointed by the Government of India named A. S. Murthy as the new CEO of the firm with immediate effect. Murthy, an electrical engineer, has been with Satyam since January 1994 and was heading the Global Delivery Section before being appointed as CEO of the company. The two-daylong board meeting also appointed Homi Khusrokhan (formerly with Tata Chemicals) and Partho Datta, a Chartered Accountant as special advisors. Acquisition by Mahindra Group On 13th April 2009, via a formal public auction process, a 46% stake in Satyam was purchased by Mahindra & Mahindra owned company Tech Mahindra, as part of its diversification strategy. Effective July 2009, Satyam rebranded its services under the new Mahindra management as "Mahindra Satyam" with a new corporate website www.MahindraSatyam.com. C.P Gurnani is the current CEO. Restatement of Results As a result of the scandal, under the directions of the new Mahindra management team, Satyam Computer Services restated its financial results for the period 2002 to 2008. These restated results were published in September 2009.
Some of the news regarding the scam
Govt. To Provide Help To CBI In Satyam Scam Case The Andhra Pradesh government on Wednesday promised to render all possible assistance to the Central Bureau of Investigation (CBI) in probing the massive fraud in Satyam Computer Services after the High Court expressed its displeasure over the lack of cooperation with the investigating team. On a direction from the court, the government filed a report within two and half hours, detailing the steps it would take to extend cooperation with the multidisciplinary team of the CBI. After being rapped by the judge for not cooperating with the CBI team, the government informed the court that it would provide the state-owned Dilkusha Guest House on Raj Bhavan road to the investigating officials. It also promised to provide all necessary cooperation to the agency to complete the probe. Earlier, in an extraordinary move the CBI approached the High Court, complaining that the government was not extending cooperation in the investigations. Taking a serious note of the government’s attitude, Justice N.V. Ramana directed the state government to file its reply within two and half hours. The CBI plea and the court’s displeasure have come as major embarrassment to the Congress government, which was already under fire from the opposition for being soft towards the disgraced founder and former chairman of Satyam B. Ramalinga Raju and other accused. The government came under criticism for the delay in recommending to the central government to order a CBI probe. Opposition parties alleged that the probe by the Crime Investigation Department (CID) of the state police was aimed at shielding the accused. The CBI last week took over the investigations into the Rs.70 billion accounting fraud, the biggest in India’s corporate history. The premier investigating agency formed a multi-disciplinary team to probe the fraud, which Ramalinga Raju admitted to Jan 7. The 23-member team comprising officials from CBI, Income-Tax Department, Registrar of Companies, Securities and Exchange Board of India (SEBI), Serious Fraud Investigation Office (SFIO), representatives of Institute of Chartered
Accountants of India and Institute of Cost and Works Accountants of India and legal experts landed here Friday. Though CID handed over all the evidence and material gathered so far to the CBI team, the latter felt the state authorities were not providing necessary facilities. Since CBI has only a small office here, the team was facing an accommodation problem and also had trouble storing and protecting 200 trunk loads of documents handed over by the CID. These documents were seized from the offices of Satyam and the residence of Ramalinga Raju and other accused. Ramalinga Raju, his brother and former managing director B. Rama Raju, former chief financial officer Vadlamani Srinivas and two former auditors from Price Waterhouse have been arrested and are lodged in Chanchalguda central jail here. Satyam’s Market Price Can Not Be Used For Valuation Of Satyam : Modi Industrialist B K Modi, whose Modi group is interested in acquiring Satyam Computer, said on Saturday that the stock market valuation could not be the basis for putting a reserve price for the sale of troubled IT firm. Asserting that only action could determine the sale price for Satyam, Modi said that stock market price could not be considered a benchmark in this case, as the market was not fully aware about the firm’s actual assets and liabilities. “The auction will determine the price… Why you require a reserve price … reserve price will only create controversy,” Modi told a news channel. Besides Modi group, domestic engineering major L&T and Hinduja group are also interested in acquiring Satyam. A board member of L&T, which has already purchased about 12 per cent stake in Satyam from open market, yesterday said that the company was waiting for Satyam board’s decision on pricing mechanism to consider its next step. Earlier this month, the Company Law Board allowed Satyam’s governmentappointed board to go-ahead with a public auction plan to bring in new owners for the company. “What is the indicative figure…books are not there. It cannot be the market, because market is not even aware what are the assets and liabilities of the company,” Modi said. “Even the board is not aware (about the assets and liabilities), so the market is working on the available information. So, I don’t think there could be any basis of reserve price,” Modi added. “You can’t take market price for reserve price because market is not self aware of all these liabilities,” he asserted.
The government had superseded Satyam’s board last month after its founder and former Chairman B Ramalinga Raju admitted financial wrongdoings at the company for several past years, which entailed overstatement of cash position and profits and under-statement of liabilities. Investigations are currently on in the Rs 7,800-crore fraud at Satyam and the new board has mandated global auditing majors KPMG and Deloitte to restate its accounts. The company’s auditors Price Waterhouse had said that its auditing of the Satyam books should not be considered reliable as they were based on statements provided by the management. Fraud Hit Satyam Keen On Buy Out By Strategic Investor The six-member Satyam Computer Services board is on a war-footing to find a strategic investor to buy out the fraud hit Indian software outsourcer, said Prem Chand Gupta, Corporate Affairs Minister, on the sidelines of a press conference on Sunday. “The board will carry out the bidding process in the most transparent manner and any company bid for Satyam subject to the proceedings being laid down by the board,” the minister said. According to him, the coming Lok Sabha elections would have no bearing on both the ongoing investigation at Satyam and the appointment of a suitable investor. “The board is working on a criterion and they will decide who the strategic investor will be in a few weeks time,” he said. Commenting on the investigation process, the minister said the Serious Fraud Investigation office (SFIO) that is probing the books of Satyam and Maytas would be able to complete their investigation in three months as the body has not asked for an extension so far. Satyam Stock Rises By 7% Post, Ramalinga Raju’s Satyam scam, the company is seeing some signs of solidarity and encouragement as stocks of Satyam rose by almost 7% on Monday. Though still at a miserable rate of Rs. 25.45, the Satyam stock rose by 7% as most of Satyam’s clients showed faith in Satyam and stated that all deliverables were delivered as per timelines and requirements. According to a stock exchange announcement, the newly-appointed board met on Jan 17 for the second time in six days to discuss the “immediate action plan”. This was, incidentally, the first board’s meet after the government’s decision to nominate three additional members.
The announcement added that the board is in touch with key customers and so far they have not heard of deliveries being affected in any way. The board has been in talks with customers, who have expressed their continued support. On the more important issue of liquidity, the board said there was definite improvement on ‘collections’ last week even as they are engaged in discussions with banks and financial institutions. “All efforts are being made to ensure that the associates (employees) are paid their salaries on time,” said the announcement. Among other things, the board decided to meet on a weekly basis till the time the search for a CEO and CFO continues. Further, till such appointments, one of the board members would chair the meeting by rotation.
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