Satyam Scam

INDIA’S CORPORATE SCANDAL

Satyam Scam

https://www.youtube.com/watch?v=KlEBp0QpX-k
The Beginning

• The Beginning B. Ramalinga Raju (“Raju”) and his

brother-in-law D. V. S. Raju established Satyam
Computer services, Inc. on June 24, 1987 when Raju
was 33 years old.
• Satyam means truth.
• The company had twenty employees after its first year
in business.
• 1989 – Listed on NASDAQ.
The Distinction

• The company was incorporated in 1991 as a public liability company.

• Listed on NASDAQ, NYSE US & Euronext, Amsterdam, Europe and
NSE, as well as the Bombay Stock Exchange.
• The company separated itself as a customer-orientated global
organization. One of its first customers was Deer and Co. Also held
contracts with Microsoft, Emirates, TRW, i2 Technologies and Ford.
• Satyam formed several subsidiaries: Satyam Renaissance, Satyam
Info way, Satyam Spark Solutions and Satyam Enterprise Solutions.
• One of the first Indian companies to enter the internet service
market.
The Failed Acquisition

• There was a failed acquisition attempt involving Raju’s

two son’s who owned the Maytas Properties and Maytas
Infrastructure (Satyam spelled backwards).
• The Board of Director’s of Satyam initially approved the
acquisition of the Maytas companies but shareholders
balked and the Board reversed their decision.
• Several Board members resigned after the reversal the
decision to acquire the Maytas companies.
The Tiger’s Bite

• The Tiger’s Bite Stock share soared until the last quarter of 2008.
• Jose Abraham (“Anonymous Whistleblower”) sent an email to an outside independent
Board of Director, Krishna G. Palepu explaining that Satyam had NO liquid assets and
verification could be obtained from the banks.
• Krishna forwarded the email first to M. Rammohan Rao another outside independent BOD.
• then forwarded the email to Satyam’s internal company Board members V. S. Raju and T.
R. Prasad.
• The email was also sent the company’s outside statutory auditor of Price Waterhouse
Cooper (“PWC”).
• The email was the forwarded to Raju - who had been avoiding calls from Board members
and audit committee members. Raju sent the email and discussed the allegations in an
email with Satyam’s CFO and VP of Finance G. Ramakrishna between August 25, 2008
and January 7, 2009.
The Letter

• Raju the Founder and Chairman publically confessed to

financial statement fraud in a letter on January 7, 2009.
His letter stated that the fraud consisted of
approximately Rs 78 billion.
• On January 9, 2009, the Government of India arrested
Raju and D.V. S. Raju
The Details

• Raju created false invoices to show inflated sales which

artificially inflated the accounts receivable account
thereby inflating the company’s revenues.
• Raju and others on the inside offloaded worthless stock
and participated in insider trading.
 The Effects of Fraud

• Satyam was order to pay $125 million and pwc

was required to pay $25.5 million to settle
shareholder suits against the companies.
•  Indian government seized control of satyam and
removed the company’s board and directors and
top managers