BUSINESS ETHICS

SATYAM FIASCOTHE STORY OF BIGGEST CORPORATE

FRAUD OF INDIA

CONTENTS

The rise of Satyam Revelation by Raju How did the fraud start? Probable reasons Maytas acquisition Why did Raju confess? Impact on the Nation investigation

SATYAM COMPUTER SERVICES

Fourth largest IT outsourcing company of India. Employees more then 50,000 people in India. High global reputation. Offers services to more then 500 MNC’S.

B RAMALINGA RAJU

Founder and former chairman of one of the biggest IT giant of our nation

“SATYAM COMPUTERS”…………………………. Guess what !! the prime

convict in the biggest scam of the country.

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THE RISE OF SATYAM

The Rise of Satyam 1987 :

1991 :

1994 :

2000 :

2002 :

Satyam Computers Pvt. Ltd. Born.

June - First Fortune 500 Client.

August - Converted into Public Ltd. Co.

The Big Break- Allies with Dun and Bradstreet Corp.

• Declared one of the 100 most pioneering technology companies by World Economic Forum.

• Dataquest IT Man of the year award.

CNBC’s Asian Business Leader – Corporate Citizen of the year Award.

ACHIEVEMENTS

Fastest growing company of India listed in three international exchanges i.e., NYSE, DOW & EURONEXT.

Winner of Innovation award for partner excellence in both 2007 and 2008 for giving significant business value.

UK trade & investment India (UKTI) Business award for corporate social responsibility.

Golden peacock award for excellence in Corporate governance.

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THE DISASTROUS REVELATION

THE DISASTROUS REVELATION

• The Black day: 7th January, 2009

• Accounting fraud of over 7800 crores rupeesFrom past 7 years accounting books were cooked:1. Profits were inflated. 2. Understated liability and overstated debts.3. Accrued interests. 4. The gaps in the balance sheets are due to the

Inflated profits.

CONFESSION LETTERRaju wrote in the confession letter :

“Every attempt to fill the gap failed & quote” . 

It was like riding a tiger, not knowing how to get off without being eaten”.

CONFESSION LETTER

Maytas Acquisition Last attempt to fill the gap.

Top officials were unaware Only MD and CFO were others.

No personal profits Did not sell any shares from 8years.

MINUTES AFTER REVELATION

MMMMM

MINUTES AFTER REVELATION

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IMPACT OF SCAM

Stock Market Share-holders Indian economy

Employees Stake-holders

SATYAM SHARES Biggest single day fall for a stock in

stock market. Rs. 175 ( Jan 6th)

77%

STOCK MARKET BSE sensex fell by 749.05 i.e., 7.25%. NSE fell by 192.40 points i.e., 6.18%.

COMPANIES WORTH 11464 crore 1607 crore.

All time low of Rs.11.50 on 9th Jan and closed at Rs.23.75/-

Compared to highest of Rs. 524.90/- on May 29,2008.

HOW DID IT START ??

ILLUSIONIST

B.RAMARAJU

V. SRINIVA

S

RAMALINGA RAJU

T.SRINIVAS

S. GOPALAKRISHN

A

THE ILLUSIONIST

Ramalinga Raju :

B Rama Raju :

V Srinivas : S

Gopalakrishnan :

Talluri Srinivas :

Satyam former chairman

Brother of Ramalinga Raju

Former Managing Director

Ex-Chief financial officer

Price Waterhouse Auditor

Price Waterhouse Auditor

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CFO revealed during investigation

Started 6-7 years ago. 10 crore was inflated to 200 crore in balance

sheet. This marginal gap went on expanding over

years. 7800 Crore fraud

IMPORTANT DATES AND EVENTS Dec 16,

2008

Dec 17, 2008

Dec 18, 2008

- decision to buy stake in MAYTAS infrastructure .

- Satyam call of the MAYTAS deal as a result of investor revolt.

-  Satyam announces a board meeting on 29th in wake of investor revolt.

IMPORTANT DATES AND EVENTS (Contd..)

Dec 19, 2008

Dec 23, 2008

Dec 28, 2008

 Post MAYTAS U-turn, Unpaid files motion against Satyam and promoters for $1.1 Billion claiming fraud. 

World bank confirms an 8 year ban of Satyam for data theft and bribery .

4 Board members resign in wake of MAYTAS controversy and board meeting postponed to Jan 10th 2009.

IMPORTANT DATES AND EVENTS (Contd..)

Jan 3, 2009

Jan 7 & 8, 2009

 Promoter stake in Satyam coming down to less than 5%.

 Mr. B. R. Raju resigns and cites financial irregularities in the book of accounts to the tune of $1.5 Billion.

sPRICE

WATERHOUSE COOPER

SATYAM AUDITORS

Among the “BIG 4”.Other 3 are:

DeloitteKPMG

Ernst &Young

Functions: Finance & Accounting,

internal audit, tax compliance, logistics & human resources.

Performs non-core functions of Organization

The Auditors - PWC

PwC was paid 3.53 crore for the year 2008

Comparatively, same industry Infosys paid 1 crore

PwC - Partners in Crime ???

Previous record - Satyam has also been accused of frauds in

2001 and 2003. No importance was given to this.

Getting third party evidence - No bank confirmation on fixed deposits Accrued interest(fixed deposit) Debtors confirmation

Factors overlooked - Changing of accounting years Huge debt despite cash surplus

PwC - Partners in Crime ???

What could have been sensed ?

Excess cash: No distribution among share holders nor

invested to earn valuable interest Operating margin:

Peer companies - 20-25% Satyam - 3%

Recession: Huge profits compared to others always a

chance of creative accounting.

PROBABLE REASONSPRESSURE TO

MEET EXPECTATION

Growing CompetitionThreat of being overtaken

OVERCONFIDENCE On his ability

PERSONAL BENEFITS

Siphoning of fundsSalary of non-existent 13000 employees

“Since about seven years we wanted to show more income in the accounts to avoid others from involving in the company affairs and any possible hostile acquisition.

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WHY DID RAJU CONFESS

WHY DID RAJU CONFESS

The gap in the balance sheet reached unmanageable proportions and could not be filled anyhow in future.

The whistle blower whose email to a Satyam board member triggered a chain of events .

IMPACT OF SCAM ON THE NATION Jobs of over 50,000 technocrats were at risk.

Country’s booming economy feared slight collapse as country's GDP fell by estimated 0.4%.

India’s IT sector suffered downturn as its image was tarnished globally.

World Bank barred Wipro, Mega soft and 3 other IT companies after the Satyam debacle.

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RAJU & OTHERS UNDER PROBE

CBI investigating further

CBI filed a charge sheet against nine on April 7,2009.

Apart from illusionist four others are :- Rajus second brother S. Raju- 2 employees from finance wing - Vice president (finance)

Regulators Investigating Satyam

SATYAM UNDER RECONSTRUCTION

SATYAM UNDER RECONSTRUCTION

Appointing new board. Board appointed by government :

• former Nasscom chief – Kiran Karnik,• Chairman HDFC – Deepak Parikh• Former SEBI member – C. Achuthan .

Satyam shares gained over 44% day after appointment of the new board.

New CEO – A S Murthy Tech Mahindra acquired Satyam on

April 13,2009.

THE FULL TRUTH,IT APPEARS,IS NOT YET OUT.

BREACH OF BUSINESS ETHICS Lack of corporate governance Lacks financial disclosure & transparency Damaged relation with stake holders

including employees , investors etc. Inequitable treatment of shareholders Zero integrity Wrong code of conduct Falsification Alteration Creative accounting Cooking the books Window dressing

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THANK YOU

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