Satyam Scam: Background, highlights and timeline

Satyam Scam: Background, highlights and timeline

Question - Recently, Ramalinga Raju along with 9 other associates were pronounced guilty in the multi-crore Satyam scam by the CBI Special Court. Discuss the Satyam scandal and the timeline of events in this scam.

Satyam Scam: Background

• The Satyam scam occurred in 2009 when founder and chairman of Satyam Computers, B. Ramalinga Raju made the confession of having tampered with the accounts of the company.

• He confessed to a INR 7,000 crore accounting fraud in the balance sheets

• The 10 persons judged guilty in the Satyam case along with their designations are as follows:

- B. Ramalinga Raju: Chairman and Founder of Satyam Computers
- B. Rama Raju: Former MD of Satyam Computers
- Vadlamani Srinivas: Former Chief Financial Officer
- Subramani Gopalakrishnan and T Srinivas: Former PriceWaterhouseCooper auditors
- B Suryanarayana Raju, G. Ramakrishna, D. Venkatpathi Raju and Ch Srisailam: Former Employee
- V.S. Prabhakar Gupta: Former Internal Chief Auditor

Key Details About the Scam

• Raju has maintained records of Satyam accounts and meeting minutes since the year 2002

• He stored record of accounts for the latest year-2008 to 2009 on a computer server called My Home Hub

• Alongside, he created fake invoices and bills using software applications such as Ontime

• Details of accounts from 2002 to 2009 were stored in two IP addresses

• A secret programme was planted using source code of official invoice management system through the User ID Super User with the capability to hide or show the invoice in the system

• Close to 356 investment firms were allegedly used to divert funds from Satyam Computers

• The companies used to conduct transactions with Satyam Computers through inter-corporate investments, advanced and loans amidst and within them. For instance, one such company with paid up capital of INR 5 lakhs made an investment of INR 90.25 crore and obtained unsecured loans of INR 600 crore

• The money raised through this fraudulent practices was used for purchasing several thousand acres of land in AP for capitalising on the booming real estate market

• Facts had to be manipulated to display healthy profits for the company and every effort made to bridge the gulf between actual and manipulated accounts failed

• Cashing out through the sale of Maytas Infrastructure and Maytas Properties for INR 7800 crore was the last unsuccessful attempt made to recover the money and it failed

Timeline: Satyam Scam

• January 7th, 2009: B. Ramalinga Raju composed a letter to SEBI explaining about falsification of the accounts of Satyam Computers. He confessed to the INR 7136 crore fraud committed by his group of associates with his approval to the government, investors, employees and other stakeholders. He also resigned from the company

• January 8th, 2009: Citibank froze 30 accounts of Satyam Computers

• January 9th, 2009: Raju was arrested along with his younger bother Rama Raju. GoI appointed its own 10 directors after disbanding the board of Satyam.

• Satyam was also removed from the Nifty and the Sensex

• January 10th, 2009: Former Satyam CFO Srinivas Vadlamani was arrested

• January 11th 2009: Centre appointed Kiran Karnik, Deepak Parekh and C.Achuthan to the board of Satyam Computers

• February 2009: CBI carried out an investigation and filed three chargesheets in the case

• March 6th, 2009: Satyam received SEBI approval for bidding process to select investors

• April 22nd, 2009: An open offer was made by Tech Mahindra to Satyam shareholders

• The offer was made at INR 58 per share and the offer was to close on June 9th

• June 22nd, 2009: Mahindra launched a new brand “Mahindra Satyam”

• 2010: Raju counters charges levelled by CBI false

• November 2nd, 2011: SC grants bail to Raju as CBI fails to file second chargesheet on time

• October 28th, 2013: ED filed criminal complaint against 47 persons and 166 corporate entities under the leadership of Raju; most of the moment was diverted to these firms

• December 8th 2014: Ramalinga Raju and 3 others were given a jail term of 6 months by the Serious Fraud Investigation Offences Wing

• December 23rd, 2014: The verdict was postponed citing excessive data

• March 9, 2015: Special court deferred verdict for one month

• April 9th, 2015: CBI Special Court finds all 10 accused guilty

Facts and Stats

• Satyam scam is essentially a scam which highlights the role played by corporate mis-governance and fraudulent auditing practices in connivance with CAs and auditors

• Company also fudged its accounts to other stakeholders including the board, stock exchanges, regulators and investors

• The Satyam scam is an accounting fraud while sought to manipulate the markets and other stakeholders through lies about the financial well being of the company

• Fundamental facts such as revenues, interest liabilities, and cash balances had been inflated beyond actual levels to show the company in good light

• External third party auditors who had to prevent fraud by promoters are also being questioned in the case