Satyam Scam |
| Credit: Marketing Mind |
OVERVIEW
• Satyam Computer Services Ltd was founded in 1987 in Hyderabad by brothers, Rama Raju and Ramalinga Raju
• The Satyam Scam was a large-scale accounting fraud of over Rs. 7,800 crores which turned out to be a whopping sum of Rs. 12,320 crores
• Satyam computer management misled the market and the stakeholders by manipulating the company's financial health.
• Material facts were misstated and went undetected for 7 to 8 years, even by PwC, its external auditors.
MANIPULATION
• Mr. Raju used his personal computer to create several bank statements to inflate the balance sheet with cash that simply did not exist.
• He went on to create records for fake employees and withdrew $3 million every month as salaries on behalf of bogus employees
• Over 7000 fake invoices were added to the company's computer systems to record non existent sales
UNBOXING OF SCAM
• Raju diverted all the money into real estate hoping to make good profits. He also set up a real estate company called Maytas (Satyam spelled backward)
• Satyam had huge cash reserves. Its board recommended that this cash should be invested to earn interest
• The trouble started when the founders decided to merge Satyam with Maytas which was already being used by Ramalinga Raju to diverge fake funds in place
• The deal fizzled out after investors and board members objected, and in four days, four directors of the company quit
• On December 23rd, the World Bank barred Satyam from doing business with any of the bank's direct contacts for 8 years.
• The World Bank alleged that Satyam was involved in data thefts and staff bribery. Shares fell to a record low in four years.
• On January 7th, 2009 the markets received the resignation of Mr. Raju and along with it a confession that he had manipulated accounts of Rs. 7000 crores.
POST SCAM
• After that, the SEBI had placed a 2-year audit ban order on PwC
• Satyam was the fourth largest Indian IT services company in terms of revenue. It was listed on Indian as well as the US stock exchanges.
• Due to the scam, Satyam was available at almost one third of its value
• Tech Mahindra and its parent, the Mahindra group saw an opportunity and acquired Satyam by becoming the highest bidders.
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