The story of BIGGEST known

Corporate fraud of India

till 2009

Presented By:

Manven Dubey

Bhumit Mistry

The rise of Satyam

Confession by Raju

Probable Reasons

Why did Raju confess

Further Steps

1987• Satyam Computers Pvt Ltd was born

1991

• June First Fortune 500 clients

• Made public ltd on 26th August, 19911991 • Made public ltd on 26th August, 1991

1992

• First IPO was subscribed 17 times.

• Listed in BSE, NYSE, and Euronext (Amsterdam)

2000

• Declared one of most Pioneering Tech company by World Economic forum

2002

• CNBC”s Asian business leader – Corporate citizen of the year award.

Employees

• The company employs 53,000 IT Professionals

Span• Development centres in 6 Continents

Clients

• It serves over 654 global companies, 185 of which are Fortune 500 corporations.2000

7th January, 2009 was the black day in the history of Satyam

Its MD confessed that from past 7 years accounting books were cooked.

Profits shown were inflated and the gaps in the balance sheet were due to it.Profits shown were inflated and the gaps in the balance sheet were due to it.

Every attempt to fill the gap failed which was more than Rs 7,800 Cr.

Top officials were un – aware mal administration of financial numbers.

No personal gains taken. He ''nor the Managing Director (including our spouses) sold any shares in the last eight years - excepting for a small proportion declared and sold for philanthropic purposes.''

RAJU’S CONFESSION

“Maytas Acquisition was the last

Confession Letter

“Maytas Acquisition was the last attempt of filling the gap”

It was like riding a tiger not

knowing how to get off without

being eaten

Started 6 - 7 years ago.

10 crore profits were inflated to Rs 200 Crore in the balance sheet

This marginal gap kept on increasing over the years.This marginal gap kept on increasing over the years.

Siphoning of funds outside India not ruled out.

Funds raised through ADR used in unconvincing ways

Salary paid to non existing employees

Ramalinga Raju –Satyam former

B Rama Raju –Brother of

Ramalinga Raju –Satyam former

ChairmanRamalinga Raju –

Managing Director

V Srinivas –

Ex Chief Financial

Officer

Talluri Srinivas -Pricewater

House Auditor

Pressure to meet

expectation.

Growing competition.

expectation.

Threat of being overtaken.

Personal benefits of

siphoning funds

The firm’s un-real & fictitious fixed deposits were managed with an

understanding between management & audit section.

Bank deposits were directly handled by

chairman & managing director.

Causes

• Individual greed,

• Celebration of profit making,

• Belief in the markets and Regulatory failure.

• Manipulation of Softwares• Manipulation of Softwares

• Lack of Audit Controls & Systemic Reviews

• Insider Trading

MaytasAcquisition

World Bank BanAcquisition Ban

Upaid Mobile Lawsuit

Accounting Scandal of

2009

World Bank banned Satyam from doing business with it for 8 years due to inappropriate payments to its staff.

UK mobile Company Upaid System lawsuit was settled for $70 mn to be paid in the instalments of $45Mn and 25Mn in two years. Non payment lead to fraud and forgery Suit.in the instalments of $45Mn and 25Mn in two years. Non payment lead to fraud and forgery Suit.

Satyam planned to acquire 51% of Maytas Infra with reserve fund. The cash reserve of $1bn did not actually existing.

Raju family had only 8% stake in Satyam so the proposal was defeated.

Firms owned by the sons of Raju. Family hold 36.64% Shares

Company raised 327.45 Cr through IPO

Had a turnover of 1,660 Cr and Profit of 100 Cr

Satyam planned to acquire 51% stake for Rs 1,440 Cr ($0.3 Bn)

Planned to buy 51% MAYTAS to fill the gap in the balance sheet of Satyam

planned to acquire 51% stake for Rs 1,440 Cr ($0.3 Bn)

Acquisition was termed "Poor corporate governance".

Raju Family owns 35% of Maytas Properties

Company has a land bank of 6,800 Acres and three IT SEZs

Raju was convinced that the gap in the balance sheet to unmanagable proportions & could not be filled anyhow in future.

A person who claimed himself to be a former senior executive in Satyam, who was involved for contract with world bank, did an e-mail to Satyam board members.

This led the chain of events & Raju decided to confess the financial crime.

Many of Raju’s confessional statements were later found telling half truth. He claimed that both MDs and their spouse did not sell any shares in last eight years.

The truth is that the stake of the promoters has fallen sharply after 2001 when they reportedly held 25.60 per cent of equity in the company. This fell to 22.26 per cent by the end of March, 2002, 20.74 per cent in 2003, 17.35 per cent in 2004, 15.67 per cent in 2005, 14.02 per cent in 2006, 8.79 in 2007, 8.65 at the end of September 2008 and 5.13 per cent in January 2009.

The last of these declines was due to sales by lenders with whom the promoters' shares were pledged,.

Other than that Raju Family sold off Four and a half Crore Shares worth Rs 2,500 Cr in Market after 2001.

Sayam’s Bank ICICI Bank

Auditors Price Water House Cooper

PWC, auditing firm of Global Trust Bank (USA)also, is facing legal proceeding in the case of PWC, auditing firm of Global Trust Bank (USA)also, is facing legal proceeding in the case of not only certifying fudged accounts of the bank but also giving it a good rating.

SEBI : Gave clean chit in Dec 2008 in probe for Corporate Governance Law.

NYSE / BSE DSP Merrill Lynch Bank terminated its engagement with Satyam as Investment Banker citing the reason of Financial Irregularities. It informed both BSE and NYSE. No one listened this whistle.

Must be Chartered Accountant.

He should be fair.

Requires some statutory duties.

Auditor is bound to inspect each and every transaction of a firm minutely and certify the same to be correct and as per rules.

These certified account statements are then sent to the share holders.

Raju & others under probe.

CBI filed a charge sheet on 7th April, 2009.

Government appointed new board.

Tech Mahindra acquired Satyam on 13th April, 2009

Enforcement Directorate is investigating in 60 countries to check the flow of money.

Fraud revised estimates to around Rs 24,000 Crore

The company faces a number of shareholder suits

IT Dept’s Tax demand for erroneous foreign tax credit of Rs 617 Cr. which has arisen due to the shenanigans of the previous promoter.

Of the above demand for erroneous foreign tax credit of Rs 345 Cr.

Intellectual Property Dispute with Upaid telecom. NYSC decision for tax liability of $ 21 mn has come in favour of Mahendra Satyam.

•The Scams like Satyam can be avoided :

- If auditor firm is honest.

- If SEBI plays an active role.

- Review legal compliance report periodically by . - Review legal compliance report periodically by .

independent directors.

- Active involvement of independent directors.

.Separation of audit and consultancy functions at

companies, and quicker publication of annual reports.

o Most certainly, say analysts and industry experts.

O Noble Group estimates at least a fifth of the top 500

listed companies practice "creative accounting". listed companies practice "creative accounting".

O At its most innocent it is not illegal, but account

manipulation is very pervasive.