SATYAM SCAM

PRESENTED BY -:
RAUNAK BISWAS
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CONTENT

 Introduction
 Founder
 The rise of Satyam
 People behind the scam
 The scam
 Impacts of Satyam scam
 Regulatory actions taken
 Steps taken after Satyam
 Result of Satyam scandal
 Conclusion

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INTRODUCTION

 Satyam computers was founded in 1987.

 It converted into Public Ltd Co. in 1992.
 The company offers consulting and information technology
services spanning various sectors.
 Mahindra Satyam is ranked #153 by Fortune India 500 in 2011.
 Satyam’s network covers 66 countries 53000 employees across
6 continents.

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FOUNDER

 He is Ramalinga Raju born on September 16, 1954. A

traditional family of KSHATRIYA (RAJU) community of
Andhra Pradesh.

 He founded Satyam Computers and was its Chairman until

January 7, 2009 when he resigned from the Satyam Board
after admitting to corporate fraud.

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THE RISE OF SATYAM

 1987 : Satyam Computers Pvt. Ltd. Born.

 1991 : June – First Fortune 500 Client.
August – Converted into Public Ltd. Co.
 1994 : The Big Break – Allies with Dun and Bradstreet
Corp. Declared one of the 100 most pioneering
technology companies by World Economic Forum.
 2000 : Dataquest IT Man of The Year Award

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PEOPLE BEHIND THIS SCAM

 Ramalinga Raju: Satyam Former Chairman

 B Rama Raju: Brother of Ramalinga Raju,
Former Managing Director
 V Srinivas: Ex-Chief Financial Officer
 S Gopalakrishnan: Price Waterhouse Auditor
 Talluri Srinivas: Price Waterhouse Auditor

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THE SCAM

 Raju and his brother, B Rama Raju were arrested by Andhra Pradesh Police on
charges of Breach of Trust, Conspiracy, Cheating, Falsification of Records.
 Raju has mislead various investors.
 Raju has also used dummy accounts to trade in Satyam’s shares.
 He has violated the insider trading norm.
 Funds from Satyam were diverted to Mayas.
 On 22nd January 2009, CID told in court that the actual number of employees is
only 40,000 and not 53,000 reported earlier and that Mr. Raju had been allegedly
withdrawing INR 20 crore for paying these 13,000 non-existent employees.

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CONTD....

 Raju wanted to take over his MAYTAS INFRA and MAYTAS PROPERTIES.

 He was blamed that he was using the funds of the investors for the family
business. There were allegations that funds from Satyam were diverted to
Maytas, causing the Government agencies to verify the infrastructure company’s
records.

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HOW THE SCAM REVEALED?

 Stock markets around the world collapsed during 2008 & BSE fell from
21,000 to below 8,000.
 The losses caused investors to withdraw funds from the stock market.
 Satyam continued to get positive results during 2008, even in the
economic crisis.
 In October 2008, Satyam reported net income of $132.3 million, an
increase of 28 percent from the same quarter of the previous year.

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HOW THE SCAM REVEALED? (CONTD.)

 Satyam asserted that, despite the challenging environment, it continued to find opportunities for
growth.

 During October, one stock analyst drew attention to large cash balances in non-interest bearing
bank accounts & expressed concern about the large balances and the accuracy of the numbers.

 Investors ignored the analysts and the stock price rose with the reports of positive earnings and
revenue growth.

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HOW THE SCAM REVEALED? (CONTD..)

 In December 2008, Board of Directors approved the purchase of Maytas Properties and Maytas
Infrastructure, two companies unrelated to the information technology field.

 At the time, Mr. Raju and the Board anticipated that the market would be delighted by the two
transactions as it would provide Satyam with greater diversification.

 However, investors were outraged over the transactions because Mr. Raju’s family held a larger
stake in Maytas Properties and Maytas Infrastructure.

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HOW THE SCAM REVEALED? (CONTD…)

 Shareholders viewed the transactions as an attempt to siphon money out of

Satyam into the hands of the Raju family.
 Satyam quickly aborted the transactions, but the incident still caused significant
damage to Satyam’s reputation as a well-managed company.
 After the incident, Satyam’s share dropped nearly 10% & 4-5 independent
directors resigned.
 On December 30, analysts with Forrester research advised clients to stop doing
business with Satyam because of the fear of widespread fraud.
 Satyam hired Merrill lynch to advise it on ways to increase shareholder value.

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HOW THE SCAM REVEALED? (CONTD….)

 On January 7, just hours before Mr. Raju disclosed the fraud, Merrill lynch sent a
letter to the stock exchange indicating that it was withdrawing from its
engagement with Satyam because during the course of its representation it
found accounting irregularities.

 On January 7, 2009 Mr Raju sent letter to Satyam’s Board Of Directors admitting

that he manipulated the company’s accounts for numbers years.

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IMPACTS OF SATYAM SCAM

 Jobs of over 50000 were at risk.

 India’s global image was suffered.
 Indian stock market fell dramatically.
 Biggest single day fall of ₹175 on Jan 6th in Satyam share.
 The New York stock exchange halted trending in Satyam stock.
 India’s National Stock Exchange announced removal of Satyam from S&P
CNX & Nifty 50.
 The GDP fell by 0.4%.
 IT sector suffered a downtown.

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IMPACTS OF SCAM

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REGULATORY ACTION

 New Board of directors were appointed.

 Disclosure of pledge securities.
 Increased financial accounting disclosure.
 Adoption of international standards.
 Creation of new corporate code of conduct by Ministry of Corporate
Affairs.

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STEPS TAKEN AFTER SATYAM SCAM

 Introduction of new rules by the market regulator, making it compulsory

for promotors of companies to disclose the percentage of shares
pledge by them to lenders.
 Appointment of independent auditors & company secretary by
Company Law Board to conduct Audit of any private organization and
time.
 Set-up of 5 member committee to suggest how to implement effective
compliance and corporate governance in private sector by CLB.

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RESULT OF SATYAM SCANDAL

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CONCLUSION

More scandals like Satyam can be avoided if:

 If auditing firm is honest.
 SEBI plays an active role.
 Periodic review of legal compliance reports by independent directors.

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