the final minor project - copy

7/31/2019 The Final Minor Project - Copy

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ACKNOWLEDGEMENT

I would like to take an opportunity to thank all the people who helped me in

collecting necessary information and making of the report. I am grateful to all of

them for their time, energy and wisdom.

Getting a project ready requires the work and effort of many people. I would like

all those who have contributed in completing this project. First of all, I would like to

send my sincere thanks to Mr. M.R. JAIN for his helpful hand in the completion of

my project.

Name: Naveen kumar


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OBJECTIVE

The objective of completing this project is to take the Satyam scam

as a case study and find out that how this fraud had came into

existence.

Also to know the suspects of the scam who gave fraud a real picture

by conducting malpractices in accounting.

The impact of the scam on the company itself, global economy,

Indian IT sector, competitors etc. also covered in the project as the

objectives.


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Executive summary

A Satyam Computers service limited was a consulting and an InformationTechnology (IT) services company founded by Mr. Ramalingam Raju in 1988. Itwas Indias fourth largest company in Indias IT industry, offering a variety of ITservices to many types of businesses. Its networks spanned from 46 countries,across 6 continents and employing over 20,000 IT professionals. On 7 th January2009, Satyam scandal was publicly announced & Mr. Ramalingam confessed andnotified SEBI of having falsified the account.

Raju confessed that Satyams balance sheet of 30 September 2008 contained:

Inflated figures for cash and bank balances of Rs 5,040 crores (US$ 1.04billion) [as against Rs 5,361 crores (US$ 1.1 billion) reflected in the books].

An accrued interest of Rs. 376 crores (US$ 77.46 million) which was non-existent.

An understated liability of Rs. 1,230 crores (US$ 253.38 million) on accountof funds which were arranged by himself.

An overstated debtors position of Rs. 490 crores (US$ 100.94 million) [asagainst Rs. 2,651 crores (US$ 546.11 million) in the books].

The letter by B Ramalinga Raju where he confessed of inflating his companys

revenues contained the following statements:

What started as a marginal gap between actual operating profit and the onereflected in the books of accounts continued to grow over the years. It hasattained unmanageable proportions as the size of company operations grewsignificantly [annualised revenue run rate of Rs 11,276 crores (US$ 2.32 billion) inthe September quarter of 2008 and official reserves of Rs 8,392 crores (US$ 1.73billion)]. As the promoters held a small percentage of equity, the concern was thatpoor performance would result in a takeover, thereby exposing the gap. Theaborted Maytas acquisition deal was the last attempt to fill the fictitious assets withreal ones. It was like riding a tiger, not knowing how to get off without being

eaten.

The Scandal:

The scandal all came to light with a successful effort on the part of investors toprevent an attempt by the minority shareholding promoters to use the firms cashreserves to buy two companies owned by them i.e. Maytas Properties and MaytasInfra. As a result, this aborted an attempt ofexpansion on Satyams part, which in


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turn led to a collapse in price of companys stock following with a shockingconfession by Raju, The truth was its promoters had decided to inflate therevenue and profit figures of Satyam thereby manipulating their balance sheetconsisting non-existent assets, cash reserves and liabilities.

The probable reasons:

Deriving high stock values would allow the promoters to enjoy benefits allowingthem to buy real wealth outside the company and thereby giving them opportunityto derive money to acquire large stakes in other firms on another hand. Therecould be the reason as to why Rajus family build its shareholding and shed itwhen required.

After the scandal, on 10 January 2009, the Company Law Board decided to barthe current board of Satyam from functioning and appoint 10 nominal directors.On 5th February 2009, the six-member board appointed by the Government of

India named A. S. Murthy as the new CEO of the firm with immediate effect. Theboard consisted of:

1) Banker Deepak Parekh.

2) IT expert Kiran Karnik.

3) Former SEBI member C Achuthan S Balakrishnan of Life InsuranceCorporation.

4) Tarun Das, chief mentor of the Confederation of Indian Industry and

5) T N Manoharan, former President of the Institute of Chartered Accountantsof India.

The chairman, Ramalinga Raju, resigned after revealing that he hadsystematically falsified accounts as the company expanded from a handful ofemployees into a back-office giant with a work force of 53,000 and operations in

66 countries.

Mr. Raju said Wednesday that 50.4 billion rupees, or $1.04 billion, of the 53.6billion rupees in cash and bank loans the company listed as assets for its secondquarter, which ended in September, were nonexistent.

Revenue for the quarter was 20 percent lower than the 27 billion rupees reported,and the companys operating margin was a fraction of what it declared, he said


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Wednesday in a letter to directors that was distributed by the Bombay StockExchange.

Satyam serves as the back office for some of the largest banks, manufacturers,health care and media companies in the world, handling everything from computer

systems to customer service. Clients have included General Electric, GeneralMotors, Nestl and the United States government. In some cases, Satyam is evenresponsible for clients finances and accounting.

The revelations could cause a major shake-up in Indias enormous outsourcingindustry, analysts said, and may force many large companies to investigate andperhaps revamp their back offices.

This development is going to have a major impact on Satyams business with itsclients, said analysts with Religare Hichens Harrison on Wednesday. In the shortterm we will see lot of Satyams clients migrating to competition like Infosys, TCS

and Wipro, they said. Satyam is the fourth-largest outsourcing firm after the threenamed.

In the four-and-a-half page letter distributed by the Bombay stock exchange, Mr.Raju described a small discrepancy that grew beyond his control. What startedas a marginal gap between actual operating profit and the one reflected in thebooks of accounts continued to grow over the years. It has attainedunmanageable proportions as the size of company operations grew, he wrote. Itwas like riding a tiger, not knowing how to get off without being eaten.

Mr. Raju said he had tried and failed to bridge the gap, including an effort in

December to buy two construction firms in which the companys founders heldstakes. Speaking of a deep regret and a tremendous burden, Mr. Raju saidthat neither he nor the co-founder and managing director, B. Rama Raju, hadtaken one rupee/dollar from the company. He said the board had no knowledgeof the situation, nor did his or the managing directors families.

The size and scope of the fraud raises questions about regulatory oversight inIndia and beyond. In addition to India, Satyam has been listed on the New YorkStock Exchange since 2001, and on Euronext since January of 2008. Thecompany has been audited by PricewaterhouseCoopers since its listing on theNew York Stock exchange.

Satyam has been under close scrutiny in recent months, after an October reportthat the company had been banned from World Bank contracts for installing spysoftware on some World Bank computers. Satyam denied the accusation but inDecember, the World Bank confirmed without elaboration on the cause thatSatyam had been banned. Also in December, Satyams investors revolted afterthe company proposed buying two firms with ties to Mr. Rajus sons.
http://topics.nytimes.com/top/news/business/companies/general_electric_company/index.html?inline=nyt-orghttp://topics.nytimes.com/top/news/business/companies/general_motors_corporation/index.html?inline=nyt-orghttp://topics.nytimes.com/top/news/business/companies/general_motors_corporation/index.html?inline=nyt-orghttp://topics.nytimes.com/top/news/international/countriesandterritories/india/index.html?inline=nyt-geohttp://topics.nytimes.com/top/news/international/countriesandterritories/india/index.html?inline=nyt-geohttp://topics.nytimes.com/top/news/business/companies/wipro-ltd/index.html?inline=nyt-orghttp://topics.nytimes.com/top/news/business/companies/wipro-ltd/index.html?inline=nyt-orghttp://topics.nytimes.com/top/reference/timestopics/organizations/n/new_york_stock_exchange/index.html?inline=nyt-orghttp://topics.nytimes.com/top/reference/timestopics/organizations/n/new_york_stock_exchange/index.html?inline=nyt-orghttp://topics.nytimes.com/top/reference/timestopics/organizations/w/world_bank/index.html?inline=nyt-orghttp://topics.nytimes.com/top/reference/timestopics/organizations/w/world_bank/index.html?inline=nyt-orghttp://topics.nytimes.com/top/reference/timestopics/organizations/n/new_york_stock_exchange/index.html?inline=nyt-orghttp://topics.nytimes.com/top/reference/timestopics/organizations/n/new_york_stock_exchange/index.html?inline=nyt-orghttp://topics.nytimes.com/top/news/business/companies/wipro-ltd/index.html?inline=nyt-orghttp://topics.nytimes.com/top/news/international/countriesandterritories/india/index.html?inline=nyt-geohttp://topics.nytimes.com/top/news/business/companies/general_motors_corporation/index.html?inline=nyt-orghttp://topics.nytimes.com/top/news/business/companies/general_motors_corporation/index.html?inline=nyt-orghttp://topics.nytimes.com/top/news/business/companies/general_electric_company/index.html?inline=nyt-org


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On Dec. 30, analysts with Forrester Research warned that corporations that relyon Satyam might ultimately need to stop doing business with the company. Firmsshould take the initial steps of reviewing the exit clauses in their current Satyamcontracts, in case management or direction of the company changed, Forrestersaid.

The scandal raised questions over accounting standards in India as a whole, asobservers asked whether similar problems might lie buried elsewhere. The riskpremium for Indian companies will rise in investors eyes, said Nilesh Jasani, Indiastrategist at Credit Suisse.

R. K. Gupta, managing director at Taurus Asset Management in New Delhi, toldReuters: If a companys chairman himself says they built fictitious assets, who doyou believe here? The fraud has put a question mark on the entire corporategovernance system in India, he said.

News of the scandal quickly compared with the collapse ofEnron sent jittersthrough the Indian stock market, and the benchmark Sensex index fell more than5 percent. Shares in Satyam fell more than 70 percent.

Just a few months ago, Mr. Raju was trying to persuade investors that thecompany was sound. In October, he surprised analysts with better-than-expectedresults, saying he was pleased that the company had achieved this in achallenging global macroeconomic environment, and amidst the volatile currencyscenario that became reality.

But by late December, it seems he had little support from the board or investors,

and four of the companys directors resigned in recent weeks. Satyam recentlyretained Merrill Lynch for strategic advice, a move that is generally a precursor toa sale.

Mr. Raju said in his statement that he sincerely apologized to shareholders andemployees and asked them to stand by the company. I am now prepared tosubject myself to the laws of the land and face consequences thereof, he said.

Heather Timmons reported from New Delhi and Bettina Wassener from HongKong.

Aftermath

Raju had appointed a task force to address the Maytas situation in the last fewdays before revealing the news of the accounting fraud. After the scandal broke,the then-board members elected Ram Mynampati to be Satyam's interim CEO.Mynampati's statement on Satyam's website said:
http://topics.nytimes.com/top/news/business/companies/forrester-research-inc/index.html?inline=nyt-orghttp://topics.nytimes.com/top/news/business/companies/credit_suisse_group/index.html?inline=nyt-orghttp://topics.nytimes.com/top/news/business/companies/enron/index.html?inline=nyt-orghttp://en.wikipedia.org/wiki/Ram_Mynampatihttp://en.wikipedia.org/wiki/Ram_Mynampatihttp://topics.nytimes.com/top/news/business/companies/enron/index.html?inline=nyt-orghttp://topics.nytimes.com/top/news/business/companies/credit_suisse_group/index.html?inline=nyt-orghttp://topics.nytimes.com/top/news/business/companies/forrester-research-inc/index.html?inline=nyt-org


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"We are obviously shocked by the contents of the letter. The senior leaders ofSatyam stand united in their commitment to customers, associates, suppliers andall shareholders. We have gathered together at Hyderabad to strategize the wayforward in light of this startling revelation."

On 10 January 2009, the Company Law Board decided to bar the current board ofSatyam from functioning and appoint 10 nominal directors. "The current board hasfailed to do what they are supposed to do. The credibility of the IT industry shouldnot be allowed to suffer." said Corporate Affairs Minister Prem Chand Gupta.Chartered accountants regulator ICAI issued show-cause notice to Satyam'sauditorPricewaterhouseCoopers (PwC) on the accounts fudging. "We have askedPwC to reply within 21 days," ICAI President Ved Jain said.

On the same day, the Crime Investigation Department (CID) team picked upVadlamani Srinivas, Satyam's then-CFO, for questioning. He was arrested laterand kept in judicial custody.

On 11 January 2009, the government nominated noted bankerDeepak Parekh,formerNASSCOM chiefKiran Karnik and former SEBI memberC Achuthan toSatyam's board.

Analysts in India have termed the Satyam scandal India's own Enron scandal.Some social commentators see it more as a part of a broader problem relating toIndia's caste-based, family-owned corporate environment.

Immediately following the news, Merrill Lynch (now a part ofBank of America) andState Farm Insurance terminated its engagement with the company. Also, Credit

Suisse suspended its coverage of Satyam . It was also reported that Satyam'sauditing firm PricewaterhouseCoopers will be scrutinized for complicity in thisscandal. SEBI, the stock market regulator, also said that, if found guilty, its licenseto work in India may be revoked. Satyam was the 2008 winner of the covetedGolden Peacock Award for Corporate Governance under Risk Management andCompliance Issues, which was stripped from them in the aftermath of the scandal.The New York Stock Exchange has halted trading in Satyam stock as of 7January 2009. India's National Stock Exchange has announced that it will removeSatyam from its S&P CNX Nifty 50-share index on 12 January. The founder ofSatyam was arrested two days after he admitted to falsifying the firm's accounts.Ramalinga Raju is charged with several offences, including criminal conspiracy,breach of trust, and forgery.

Satyam's shares fell to 11.50 rupees on 10 January 2009, their lowest level sinceMarch 1998, compared to a high of 544 rupees in 2008. In New York StockExchange Satyam shares peaked in 2008 at US$ 29.10; by March 2009 theywere trading around US $1.80.
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The Indian Government has stated that it may provide temporary direct or indirectliquidity support to the company. However, whether employment will continue atpre-crisis levels, particularly for new recruits, is questionable.

On 14 January 2009, Price Waterhouse, the Indian division of

PricewaterhouseCoopers, announced that its reliance on potentially falseinformation provided by the management of Satyam may have rendered its auditreports "inaccurate and unreliable".

On 22 January 2009, CID told in court that the actual number of employees is only40,000 and not 53,000 as reported earlier and that Mr. Raju had been allegedlywithdrawing INR 20 crore rupees every month for paying these 13,000 non-existent employees.

New CEO and special advisors

On 5 February 2009, the six-member board appointed by the Government ofIndianamed A. S. Murthy as the new CEO of the firm with immediate effect. Murthy, anelectrical engineer, has been with Satyam since January 1994 and was headingthe Global Delivery Section before being appointed as CEO of the company. Thetwo-day-long board meeting also appointed Homi Khusrokhan (formerly with TataChemicals) and Partho Datta, a Chartered Accountant as special advisors.

Acquisition by Mahindra Group

On 13th April 2009, via a formal public auction process, a 46% stake in Satyamwas purchased by Mahindra & Mahindra owned company Tech Mahindra, as part

of its diversification strategy. Effective July 2009, Satyam rebranded its servicesunder the new Mahindra management as "Mahindra Satyam" with a newcorporate website www.MahindraSatyam.com.

C.P Gurnani is the current CEO.

Restatement of Results

As a result of the scandal, under the directions of the new Mahindra managementteam, Satyam Computer Services restated its financial results for the period 2002to 2008. These restated results were published in September 2009.
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Contents

S.no. Topics Page no.

1.

1.1

1.2

1.3

1.4

Introdction

What is satyam scam

Comparison with other IT

indusry

An important lesson for

investors

Investors want answers

12

12

13

13

14

2.

2.1

2.3

2.4

Unveiled satyam scam

How they didi it

Who sold what

The original fraud value

15

15

19

20

3.

3.1

3.2

3.3

3.4

Company profile

Introduction of company

Indusry presence

Offices across the globe

Competencies

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21

22

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23


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3.5

3.6

3.7

3.8

3.9

3.10

4.

4.1

4.2

4.3

4.4

5.

5.1

5.2

5.3

5.4

Partnerships

Mergers

Turnaround

Awards

Intellectual properties

Offices

Impact of Satyam scam

On global economy

Impact on capital market

Satyam scam had dented

India Incs image abroad

Scam questions corporate

governance

Post scam era

Growth phase

Firing on all fours

The way forward

One plus one

Bibliography

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23

24

25

30

31

32

32

35

36

37

42

42

44

44

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Chapter 1. Introduction

1.1 Introduction:

Satyam is the fourth largest Indian It company and it has been known as the oneof the best Indian IT companies to work with and it has risen past severalcompanies to bag several projects.

It's revenues were in the range of 10,000 crores a year and has a roster of about

650 clients all over the world who used to offshore their work to Satyam.

10000 crores will mean about 2 billion dollars or rather more based on thevaluation of the rupee.

This companies founder is Mr. Ramalinga Raju who in a letter to the Board ofDirectors said that he has for the past seven years overstated the accounts andthat the total profit margin of the company is only 3% even though he has beenfraudulently showing a profit margin of about 25%.

That means he was showing a cash at hand I mean in the bank accounts to be5000 crores about a billion dollars whereas the cash is only 640 crores or evenless in the accounts. That letter caused a stir and the jobs of about 55000employees is at stake as well as the whole future of the company is at stake.


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The chairman, Ramalinga Raju, resigned after revealing that he had

systematically falsified accounts as the company expanded from a handful of

employees into a back-office giant with a work force of 53,000 and operations in

66 countries.

Mr. Raju said Wednesday that 50.4 billion rupees, or $1.04 billion, of the 53.6

billion rupees in cash and bank loans the company listed as assets for its second

quarter, which ended in September, were nonexistent.

Revenue for the quarter was 20 percent lower than the 27 billion rupees reported,

and the companys operating margin was a fraction of what it declared, he said

Wednesday in a letter to directors that was distributed by the Bombay StockExchange.

1.2 A comparison with other IT companies

Other IT companies especially those operating from Indian IT shores such asWipro, Infosys and TCS have more revenues than Satyam but the fact is thateach of them and even some companies smaller than Satyam have a profitmargin of about 25% or so.

Satyam was saying that the profit margin is only 3% which was very hard tobelieve and hence the big question is where is the money and the reason foroverstating the profits and the cash in hand.

The problem is why Satyam has such low profit margins which means that thereare more employees than there was work and secondly if indeed the revenue isthat much then why the profit margin is less and if it is same as other companiesthe where did the money go ?

1.3 An Important Lesson for Investors

Investors generally tend to be more favorable towards the big companies and alsotend to put a lot of money into one particular stock and that I believe is very muchwrong.


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fig 1.3

The name of the game is diversification and as a stock market for beginners

guide I would say that make sure that you do due diligence for investing in eachcompany as well as make sure that you do not even invest in one stock of the

same industry but instead invest in several stocks of each industry.

1.4 Answers to Investor

Industry executives were desperately trying to contain the fallout. "The decline ingovernance and institutions represents a serious challenge to India," says RajeevChandrashekhar, president of the Federation of Indian Chambers of Commerce

and Industry. Wipro Technologies (WIT) Chief Financial OfficerSuresh Senapaty,went on TV to say that Satyam's actions should not infect the entire Indian ITindustry. And Mohandas Pai, head of human resources at Infosys (INFY) and thecompany's former chief financial officer, argued Satyam's behavior is atypical."We wish the regulators will investigate and punish the guilty," he says. "But this isnot representative of our industry." John McCarthy, vice-president of ForresterResearch, allays some fears. "I look at Satyam as an isolated case, and don'tthink the developments would have any impact upon India's No. 1 position as anoffshore location."

Still, investors and clients were going to want answers. For instance, they're

demanding to know how Satyam's auditor, PricewaterhouseCoopers, endorsedthe company's accounts. "Auditors' complicity in what seems to be a multiyearmisstatement of financials will also be explored," said CLSA's Vajpayee in his Jan.7 report. Already, India's Registrar of Companies had begun a probe into a failedacquisition last month by Satyam of companies run by Raju's two sons. Now thecountry's securities regulator will add its weight by investigating the PwC audit.PwC issued a statement saying it was examining the issue.
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Raju's confession was the latest in a rocky ride for Satyam, its shareholders, andits stakeholders over the past year. The company's clients include multinationalssuch as Nestl, General Motors (GM), and General Electric (GE). But inSeptember, the World Bank banned Satyam from doing any of its work after itfound Satyam employees had hacked into its system and gained access to

sensitive information. It also did not renew their five-year contract. Satyam deniedany wrongdoing. Then came a fresh blow on Dec. 16, when Raju announced thecompany would spend $1.6 billion to buy two infrastructure companies run by thissons, only to reverse the decision a few hours later under shareholder pressure.Satyam ADRs lost 50% of their value overnight. December also brought news ofpending litigation by a former client, online mobile-payments service UpaidSystems, which filed a case of intellectual fraud and forgery against Satyam in2007; a Texas court is scheduled to conduct a hearing on the case Jan. 7.
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Chapter 2. Real Story of Satyam scam

2.1 How the Satyam story unfolded

Andhra Business Bureau Dec 16,2009Recalling a year of Satyam saga,we present a chronology ofevents right from the dayRamalinga Raju announced

plans to acquire Maytas Infra andMaytas Properties to the filing ofsupplementary charge-sheet bythe CBI last month.

Dec 16, 2008 - Satyamannounces the acquisition ofMaytas Infra and Maytasproperties for $1.6 billion.

Dec 17, 2008 - Satyam

withdraws acquisition plan in light of feedback received from investor community.We have been surprised by the market reaction to this decision even though wewere quite positive about the merits of the acquisition, said Ramalinga Raju.

Dec 18, 2008 - The company announces a board meeting on Dec 29, 2008 toconsider buyback of shares

Dec 23, 2008 - World Bank announces debarring Satyam from doing anybusiness with it for eight year due to alleged malpractices including bribery.

Dec 25, 2008 - Satyam objects World Banks statements and asks the latter to

withdraw statements and apologies.

Dec 25, 2008 - Dr. Mangalam Srinivasan, Independent Director, resigns fromthe board.

Dec 29, 2008 - Company announces postponement of Board meeting toJanuary 10, 2009. The scope of deliberations for the board meeting expanded, toinclude change in composition of board and addressing issues arising out of


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possible dilution ofpromoters stake in the company.

Company admitted that the promoters had pledged almost all theirshares in Satyam over a period since September 2006 and that some of thelenders would have liquidated the shares to cover margin shortfall.

Three more independent directors, Prof.Krishna G Palepu, Vinod KDham and Prof M Rammohan Rao, resign from the board.

Jan 7, 2009 - Ramalinga Raju sends his confession letter to the stockexchanges admitting to have fudged the account books of Satyam with inflatedprofit figures. It was like riding a tiger, not knowing how to get off without beingeaten, he famously said.

Ramalinga Rajus brother and Satyams Managing Director, RamaRaju also tenders resignation

He also tenders his resignation anointing Ram Mynampati as theinterim CEO and subjects himself to the law of the land.

Jan 8,2009 - Raju is untraceable even as media speculates on his possiblehiding

Jan 9, 2009 - Ramalinga Raju and brother Rama Raju surrender before DGPOf AP, SSP Yadav.

SEBI orders enquiry into the issuesCB-CID asked to probe the fraud

Jan 10, 2009 - Satyam CFO Srinivas Vadlamani arrested.

Jan 12, 2009 - Ministry of Corporate Affairs appoints a ne three member boardfor Satyam including Deepak Parekh, Kiran Karnik and C. Achutan.

Jan 14, 2009 - Satyams auditing firm PricewaterhouseCoopers (PwC) sends aletter to the new board stating that it relied on the management controls overfinancial reporting and that PwCs opinions on Satyams financial statementsshould not rendered inaccurate in view of Rajus confession letter

Jan 14, 2009 - The new board of Satyam appoints Deloitte and KPMG to assistthe board in the restatement of accounts.

Jan 16, 2009 - Satyam denies that its top leadership including RamMynampati,Virender Aggarwal and Keshub Panda have fled the country.

Jan 17, 2009 - Government appoints three new members to the Satyam board


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Jan 29, 2009 - The race to buy Satyam begins as L&T buys an additional 7.56per cent stake to raise its total shareholding in Satyam to 12 per cent.

Feb 5, 2009 - Interim board appoints AS Murty as CEO

Feb 10, 2009 - IDBI and Bank of Baroda offer Rs 600 Crore loan to Satyam forworking capital requirements

Feb 20, 2009 - Company Law Board allows Satyam to induct strategic investorand raise funds through preferential allotment.

Mar 6, 2009 - Satyam receives SEBI approval to find an investor to buy 51 percent in the company.

Mar 25, 2009 - Satyam acquisition race hots up. Three bidders including L&T,Wilbur Ross and Tech Mahindra shortlisted.

Apr 8, 2009 - CBI files 65,000 pages charge sheet against nine main accusedin the scam including Ramalinga Raju and Rama Raju.

Apr 13, 2009 - Tech Mahindra acquires 31 per cent in Satyam for Rs 1,756crore.

Jun 22, 2009 - Satyam renamed Mahindra Satyam

Jun 23, 2009 - CP Gurnani appointed as CEO of Mahindra Satyam, replacingAS Murty

Jul 17, 2009 - CLB recalls four of the six members nominated to the Satyamboard.

Nov 25, 2009 - CBI files supplementary charge sheet accusing Ramalinga Rajuof forging board resolutions and obtaining unauthorized loans to the tune of Rs1,220 crore.

The Serious Fraud Investigation Office had probe also Maytas infrastructure aspart of the Satyam financial scam probe.

Corporate affairs minister P C Gupta said on 12 Jan 2009 evening that initialinvestigations suggest a clear nexus between Satyam, Maytas properties andMaytas infrastructure

Earlier, the Andhra High Court dismissed Ramalinga Raju's revision petitionagainst his police custody. But SEBI still did not get to question Raju on Monday


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as a court order on the body's petition to question him was postponed till January22.

Meanwhile the CID was questioning the Raju brothers and former Satyam CFOVadlamani Srinivas.

They were also looking into their e-mails and phone records over the last onemonth.

Meanwhile, Andhra chief minister Y S R Reddy reiterated his government did notflout any rule in awarding the Hyderabad metro rail project to Maytas.

But how deep and how wide is the rot inside India's fourth largest softwarecompany?

Sources tell CNN-IBN the company is facing serious money crunch, and needsRs 1,110 Crore to tide over the crisis and Rs 500 Crore to pay the January salaryto employees.

Meanwhile a search was also on for a new CEO for the embattled IT firm.Network-18 learns that the board is looking at a 10-day time period to picksomeone to head the company. Over 40 applications have come in so far.

There is now also a question mark on the number of employees Satyam has. It isreported that Satyam has 53,000 employees.

2.2 How they did it

Investigators are now reportedly coming across evidence of insider trading by thepromoters even before the scandal broke.

The big take away from the Registrar of Companies report is that the topmanagement of Satyam - the directors and senior officials - sold shares ahead ofthe Big Bang revelation by Raju.

The reports say Satyam books have been overstated by Rs 5,000 to Rs 6,000

crore, leading to an inflated stock price that helped the top management makemoney.

2.3 Who sold what?

Raju has claimed that no one else in the company was privy to the fudging ofaccounts. But exclusive information with CNN-IBN suggests insider trading.


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BSE figures show a number of senior people in the company, including Raju andCFO Vadlamani were reportedly selling Satyam's shares over the last 22 quarters.

In June 2001, Raju had nearly 23 per cent shares. By December that year, hisshare was down to 22.4 per cent.

In September 2002, it fell to 21.6 per cent which fell a year later to just over 19 percent.

In 2004, Raju's holding was 16 per cent which fell to 14 per cent in 2005, 11 percent in 2006. In 2007 it was in single digit.

By September 2008 Raju's share was just 8.27 per cent.

BSE figure also show Vadlamani sold 92,538 shares while the then CEO RamMynampati sold 700,000 shares plus 2, 50,000 ADRs.

Apart from these, other senior officials also reportedly sold large number of

shares. Sources say they include one Kiran Cavale who reportedly sold 400,000

shares and 10,000 ADRs and one Rajan Nagarajan who reportedly sold 430,000

shares and 70,000 ADRs.

2.4 The original fraud value

The financial crisis has brought a dark day to India. The chairman of SatyamComputer Services Ltd, the countrys fourth largest software exporter, hasresigned after a margin call forced him to admit defrauding investors for years by

fiddling the accounts. B. Ramalinga Raju controlled just 8% of the prestigiousfamily business. But like New Yorks $50 billion (Rs2.4 trillion) Ponzi -schemefraudster Bernard Madoff, it appears to have been easy for this respectedbusinessman to commit his crime. After years of vastlyinflating profits, it turns out Satyam isnt a rapid-growth bellwether of Indiasflagship industry. The reality is shocking. Satyams operating margin wasnt the24% as shown in its accounts audited by PricewaterhouseCoopers, but just 3%.

And Satyam had nothing close to the reported Rs5, 360 Crore ($1.1 billion) cashpile on its balance sheet. The real amount was just a measly $78 million.

The Satyam fraud has unraveled rapidly. Alarm bells first sounded when the ITsoftware firm tried to buy two

Construction companies in which the founder also held stakes. Investors vetoedthe deal and Satyam shares fell sharply. That appears to have triggered a deadlymargin call on a $1 billion loan against sharesand the first reduction of Satyamsfounders holding in eight years. Unlike Madoff, Satyams founder claims he hasnt


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benefited financially from the fraud. But his deceit appears to have been born outof a similar type of greed: for prestige and business accolade in close-knit Indianbusiness circles. Depicting himself as a man consumed, Raju claims what startedoff as an attempt to cover a marginal discrepancy simply swelled to a deceit ofunmanageable proportions.

Satyams revelation is a big blow to confidence in Indian capitalism. Leadingfamily conglomerates have already had a tough yearpoor performance andacquisition choices have seen confidence falter in both the Tata and

Reliance business empires. The Satyam fraud will further erode faith in the wholeIndian model of capitalism, which is largely dominated by family-runconglomerates.

Satyams disgraced chairman described the growing fraud as like riding a tiger,not knowing how to get off without being eaten. The same sentiment applies to

too much of the financial boom, in India and elsewhere.


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Chapter3. Company profile

3.1 Introduction of the company

Satyam, a SEI-CMM Level 5 company, offers a range of expertise in the areas of

Information Technology Software Development Services, Systems Integration,

ERP Solutions, Product Development, Internet access & hosting services,

Electronic Commerce and Consulting. Satyam has nearly 6,000 IT professionals,

who operate out of its state-of-the-art software development centers located in

India, the USA, Japan, Singapore and the UK. These Centers work as anextended enterprise (IT partner) for over 150 Fortune 500 and multinational clients

worldwide.

Satyam, a multifaceted, totally integrated IT solutions provider is engaged in

application development and maintenance, systems integration, data marts,

conversion and migration, Euro currency and engineering services

(CADCAMCAE).

It specializes in customized IT solutions for industries in the areas of

Manufacturing, Financial services, Insurance, Transportation, Telecom,Healthcare and Power. The company also offers Network and network-enabled

services in India. It provides Internet access & hosting services, Intranet, e-mail,

EDI, store & forward, and online information services.
http://en.wikipedia.org/wiki/File:Satyam_Campus.JPGhttp://en.wikipedia.org/wiki/File:Satyam_Campus.JPGhttp://en.wikipedia.org/wiki/File:Satyam_Campus.JPGhttp://en.wikipedia.org/wiki/File:Satyam_Campus.JPGhttp://en.wikipedia.org/wiki/File:Satyam_Campus.JPG


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3.2 Industry Presence

Mahindra Satyam provides services in the following areas:

1. Aerospace and Defense2. Banking, Financial Services & Insurance3. Life Sciences & Healthcare4. Manufacturing, Chemicals & Automotive5. Public Services & Education6. Retail

7. Consumer Packaged Goods8. Travel, Transport, Logistics9. Telecom, Infrastructure, Media and Entertainment & Semiconductors

3.3 Offices of Mahindra Satyam Across The Globe

Mahindra Satyam headquartered in Hyderabad, India has development centersand/or regional offices in the following located Americas, APAC, Europe,MiddleEast and Africa.

Global units

Asia Pacific:India-Bangalore, Bhubaneshwar, Chennai, Coimbatore, Hyderabad(Headquarter), Pune, Vishakapatnam, Delhi,[4] Gurgaon,[5] Mumbai.

Australia, China, Hong Kong, Japan, Malaysia, New Zealand, Singapore, Taiwan,Thailand, Korea

Europe: Belgium, Czech Republic, Denmark, France, Finland, Germany,Hungary, Ireland, Italy, Netherlands, Spain, Sweden, Switzerland, UnitedKingdom.

Middle East and Africa: Bahrain, Egypt, Jordan, Kenya, Kuwait, Qatar, SaudiArabia, South Africa, United Arab Emirates.
http://en.wikipedia.org/wiki/Hyderabad,_Indiahttp://en.wikipedia.org/wiki/Americashttp://en.wikipedia.org/wiki/APAChttp://en.wikipedia.org/wiki/Europehttp://en.wikipedia.org/wiki/Middle_Easthttp://en.wikipedia.org/wiki/Middle_Easthttp://en.wikipedia.org/wiki/Africahttp://en.wikipedia.org/wiki/Asia_Pacifichttp://en.wikipedia.org/wiki/Asia_Pacifichttp://en.wikipedia.org/wiki/Bangalorehttp://en.wikipedia.org/wiki/Bhubaneshwarhttp://en.wikipedia.org/wiki/Chennaihttp://en.wikipedia.org/wiki/Coimbatorehttp://en.wikipedia.org/wiki/Hyderabad,_Indiahttp://en.wikipedia.org/wiki/Punehttp://en.wikipedia.org/wiki/Vishakapatnamhttp://en.wikipedia.org/wiki/Delhihttp://en.wikipedia.org/wiki/Mahindra_Satyam#cite_note-3http://en.wikipedia.org/wiki/Mahindra_Satyam#cite_note-3http://en.wikipedia.org/wiki/Gurgaonhttp://en.wikipedia.org/wiki/Mahindra_Satyam#cite_note-4http://en.wikipedia.org/wiki/Mahindra_Satyam#cite_note-4http://en.wikipedia.org/wiki/Mumbaihttp://en.wikipedia.org/wiki/Australiahttp://en.wikipedia.org/wiki/Chinahttp://en.wikipedia.org/wiki/Hong_Konghttp://en.wikipedia.org/wiki/Japanhttp://en.wikipedia.org/wiki/Malaysiahttp://en.wikipedia.org/wiki/New_Zealandhttp://en.wikipedia.org/wiki/Singaporehttp://en.wikipedia.org/wiki/Taiwanhttp://en.wikipedia.org/wiki/Thailandhttp://en.wikipedia.org/wiki/Koreahttp://en.wikipedia.org/wiki/Europehttp://en.wikipedia.org/wiki/Europehttp://en.wikipedia.org/wiki/Belgiumhttp://en.wikipedia.org/wiki/Czech_Republichttp://en.wikipedia.org/wiki/Denmarkhttp://en.wikipedia.org/wiki/Francehttp://en.wikipedia.org/wiki/Finlandhttp://en.wikipedia.org/wiki/Germanyhttp://en.wikipedia.org/wiki/Hungaryhttp://en.wikipedia.org/wiki/Irelandhttp://en.wikipedia.org/wiki/Italyhttp://en.wikipedia.org/wiki/Netherlandshttp://en.wikipedia.org/wiki/Spainhttp://en.wikipedia.org/wiki/Swedenhttp://en.wikipedia.org/wiki/Switzerlandhttp://en.wikipedia.org/wiki/United_Kingdomhttp://en.wikipedia.org/wiki/United_Kingdomhttp://en.wikipedia.org/wiki/Middle_Easthttp://en.wikipedia.org/wiki/Africahttp://en.wikipedia.org/wiki/Africahttp://en.wikipedia.org/wiki/Bahrainhttp://en.wikipedia.org/wiki/Egypthttp://en.wikipedia.org/wiki/Jordanhttp://en.wikipedia.org/wiki/Kenyahttp://en.wikipedia.org/wiki/Kuwaithttp://en.wikipedia.org/wiki/Qatarhttp://en.wikipedia.org/wiki/Saudi_Arabiahttp://en.wikipedia.org/wiki/Saudi_Arabiahttp://en.wikipedia.org/wiki/South_Africahttp://en.wikipedia.org/wiki/United_Arab_Emirateshttp://en.wikipedia.org/wiki/United_Arab_Emirateshttp://en.wikipedia.org/wiki/South_Africahttp://en.wikipedia.org/wiki/Saudi_Arabiahttp://en.wikipedia.org/wiki/Saudi_Arabiahttp://en.wikipedia.org/wiki/Qatarhttp://en.wikipedia.org/wiki/Kuwaithttp://en.wikipedia.org/wiki/Kenyahttp://en.wikipedia.org/wiki/Jordanhttp://en.wikipedia.org/wiki/Egypthttp://en.wikipedia.org/wiki/Bahrainhttp://en.wikipedia.org/wiki/Africahttp://en.wikipedia.org/wiki/Middle_Easthttp://en.wikipedia.org/wiki/United_Kingdomhttp://en.wikipedia.org/wiki/United_Kingdomhttp://en.wikipedia.org/wiki/Switzerlandhttp://en.wikipedia.org/wiki/Swedenhttp://en.wikipedia.org/wiki/Spainhttp://en.wikipedia.org/wiki/Netherlandshttp://en.wikipedia.org/wiki/Italyhttp://en.wikipedia.org/wiki/Irelandhttp://en.wikipedia.org/wiki/Hungaryhttp://en.wikipedia.org/wiki/Germanyhttp://en.wikipedia.org/wiki/Finlandhttp://en.wikipedia.org/wiki/Francehttp://en.wikipedia.org/wiki/Denmarkhttp://en.wikipedia.org/wiki/Czech_Republichttp://en.wikipedia.org/wiki/Belgiumhttp://en.wikipedia.org/wiki/Europehttp://en.wikipedia.org/wiki/Koreahttp://en.wikipedia.org/wiki/Thailandhttp://en.wikipedia.org/wiki/Taiwanhttp://en.wikipedia.org/wiki/Singaporehttp://en.wikipedia.org/wiki/New_Zealandhttp://en.wikipedia.org/wiki/Malaysiahttp://en.wikipedia.org/wiki/Japanhttp://en.wikipedia.org/wiki/Hong_Konghttp://en.wikipedia.org/wiki/Chinahttp://en.wikipedia.org/wiki/Australiahttp://en.wikipedia.org/wiki/Mumbaihttp://en.wikipedia.org/wiki/Mahindra_Satyam#cite_note-4http://en.wikipedia.org/wiki/Gurgaonhttp://en.wikipedia.org/wiki/Mahindra_Satyam#cite_note-3http://en.wikipedia.org/wiki/Delhihttp://en.wikipedia.org/wiki/Vishakapatnamhttp://en.wikipedia.org/wiki/Punehttp://en.wikipedia.org/wiki/Hyderabad,_Indiahttp://en.wikipedia.org/wiki/Coimbatorehttp://en.wikipedia.org/wiki/Chennaihttp://en.wikipedia.org/wiki/Bhubaneshwarhttp://en.wikipedia.org/wiki/Bangalorehttp://en.wikipedia.org/wiki/Asia_Pacifichttp://en.wikipedia.org/wiki/Africahttp://en.wikipedia.org/wiki/Middle_Easthttp://en.wikipedia.org/wiki/Middle_Easthttp://en.wikipedia.org/wiki/Europehttp://en.wikipedia.org/wiki/APAChttp://en.wikipedia.org/wiki/Americashttp://en.wikipedia.org/wiki/Hyderabad,_India


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Americas: USA, Canada, Brazil.

3.4 Competencies

Mahindra Satyam offers the following horizontal services.

Extended Enterprise Solutions Web Commerce Solutions Business Intelligence Services Quality Consulting Strategic Outsourcing Services Industry Native Solutions

Business Services Group - BSG (BPO)

Engineering Services Product management

3.5 Partnerships

Feb 11, 2010, Mahindra Satyam, announced that it has entered into a partnershipwith the Integr8 Group, Africas largest privately owned ICT service and solutionsprovider.

3.6 Merger

Mahindra Satyam's proposed merger with Tech Mahindra may be delayed allbecause of legal issues, and ambiguity over jurisdiction between investigatingagencies and the government.
http://en.wikipedia.org/wiki/Americashttp://en.wikipedia.org/wiki/Americashttp://en.wikipedia.org/wiki/USAhttp://en.wikipedia.org/wiki/Canadahttp://en.wikipedia.org/wiki/Brazilhttp://en.wikipedia.org/wiki/Brazilhttp://en.wikipedia.org/wiki/Canadahttp://en.wikipedia.org/wiki/USAhttp://en.wikipedia.org/wiki/Americas


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The merger has been delayed due to two tax cases pending with the Income Tax

claiming over Rs 2700 crore for both.

3.7 Turnaround

The company had reported a consolidated net loss of Rs 233.3 Crore for the July

September quarter of 2010. Speaking at a press conference, Vineet Nayyar,

chairman of the company said the consolidate cash and cash equivalents at Rs

30 Crore compared to Rs 26 Crore. We will take three [years] for a turnaround,

he informed. Even though the company got 245 crores profit in Q4 for 20102011,but due to outside payments nearly 570 crores for SEK,UNIPAID and Class

Action Suit in Q4 (Total 641 crores for the year 2010-2011 ),the company had

reported a consolidated net loss of Rs 327 crore for the Jan-Mar quarter of 2010-

2011.IT firm Mahindra Satyam today posted a consolidated net profit of Rs 225.2

crore for the quarter ended June 30, 2011. During the quarter, the company

added 2,172 people (net), taking total headcount to 31,438 as of June 30, 2011.

It was the biggest Fraud in the nation and also in the corporate world. It is hard tobelieve that one of the largest IT companies, Satyam Computer Systems,

underwent such a huge fraud case. Two brothers, Mr. Raju and B. RamalingaRaju, who were the founder of Satyam Computer Systems were arrested forfurther investigation in the Satyam fraud case. The chief financial officer, SrinivasVadlamani, may join the two brothers in jail because he resigned just after B.Ramalinga Raju resigned after the fraud case. The two brothers have beencharged for cheating, criminal breach of trust and forgery.

The Satyam Computer Systems is considered to be one of the leadingoutsourcing companies in India and it was among the top five IT companies inIndia. The company employs about 53,000 people and now the faith of thesepeople is critical. And also many new engineers and technicians were recruited

recently from colleges and universities in campus interview. It is doubtful whetherthe Satyam Computer Systems will be able to send the joining letters to all thesenew recruits.

The Rs. 7,100 Crore fraud case of Satyam will give awareness to all thecompanies that there must be transparency in all the aspects within thecompanies. There has been a talk that some leaders of IT companies like AzimPremji will take over the control of the company but it has not been finalized yet.


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If you just want to know more on how Ramalinga Raju started losing his attentionfrom the company, then I can relate some more information about the backgroundof the fraud case. Well, the two sons of Raju are investing in the real estatebusiness and recently their real estate business was not in good shape. So, Rajustarted using the manpower and other resources for the Satyam Company for the

welfare of his sons real estate business. Now the four main shareholders ofSatyam Company were horrified by the changing behavior of Raju and they wantthe attention of Raju in his company. As a result of this, the company has somesetback in the IT and outsourcing field as their main concentration slightly goes tothe real estate business of Rajus sons.

Now Ram Mynampati is the interim CEO of Satyam Computer System and he isdoubtful whether the company has enough funds for paying salaries to itsassociates for January. This is the biggest fraud case in the history of ITcompanies and Ram Mynampati is in a very critical situation handling the sinkingcompany.

3.8 AWARDS

2010-11

Award Awarded By

Oracle APAC FY10 OPN Enterprise 2.0

Partner of the Year Award

Oracle

Gold Award in the Event Services category at

the International Sport Event Management

Awards for its stellar contribution to the 2010

FIFA World Cup. The award is the highest

peer recognition in the Sport industry.

Rushmans and Informa

Sports Group (ISG)

Top-50 Marketers Award, under the

Resurgent Marketers

Pitch India


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category for 2010

Mahindra Satyam BPO awarded in the BPO

Contract of the Year category at the National

Outsourcing Association (NOA) Awards 2010

National Outsourcing

Association (NOA), UKs only

outsourcing trade association

& centre of excellence in

outsourcing

Mahindra Satyam BPO honored as Indias

Most Customer-Responsive BPO Company

AGC Networks, The

Economic Times, Ernst &

Young and Nielsen

2009-10

Award Awarded By

Hyderabad Organizational unit

assessed at a maturity level 5 on

the SEI CMMI ver 1.2 in Jan 2009

KPMG

Excellence In Practice recognitions for learning American Society for

Training &

Development (ASTD)


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Declared as Voice-Ready partner for Microsoft

Unified Communications

Microsoft

Moves up to be among the Top 10 in Training Top

125 list

Training magazine

Awards for excellence in Leadership Development,

Marketing & Communications of Brand Value of

Learning, and Strategic Alignment of Learning to

Business Strategies

Corporate University

Xchange (CorpU)

Progressive Manufacturing 100 Award for Rain CII

Carbon

Managing Automation

Media

2008-09

Award Awarded By

BS25999 Certification

for all India Operations. Satyam

Computer Services Ltd. is the third

company to achieve this certification.

BSI Management Systems


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Asian MAKE (Most Admired

Knowledge Enterprise) Award

Teleos, in association with KNOW

Network

UK Trade & Investment India (UKTI)

Business Award for corporate socialresponsibility

UKTI

SAP Pinnacle Award 2008 under

Service Ecosystem Expansion

(Growth) category

SAP

Best IR Website in the Asia Pacific &

Africa region for providing complete,

accurate and timely investor relations

information

MZ Consult

Award for Best IT Practices in IT

Sector

Amity Business School, Noida,

India

2007-08

Award Awarded By

Partner Innovation Award for Anti-Money

Laundering (AML) solution

Pegasystems

Competitive Strategy Leadership Award for

Offshore Testing Market

Frost & Sullivan

Asian MAKE (Most Admired Knowledge Teleos, in association with


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Enterprise) Award KNOW Network

Indian MAKE (Most Admired Knowledge

Enterprise) Award

Teleos, in association with

KNOW Network

Award for "Strengthening

Customer Relationships"

ITSMA (IT Services Marketing

Association)

Winner of the First Partner Innovation

AwardSoftware AG/webMethods

Ranked # 1 in the ASTD BEST Award American Society for Training

andDevelopment(ASTD)

First Asian company to rank in Training

Magazine's Top 125 companies for

learning

Training Magazine

2006-07

Award Awarded By

TDWD Best Practices Award TDWI (The Data Warehousing

Institute) of North America

Top Asian Knowledge Organization Most Admired Knowledge Enterprise

(MAKE)

Third-Best Company to Work for in BT-Mercer-TNS


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India

Award for most innovative

recruitment practices

RASBIC (Recruiting & Staffing Best in

Class)

Ranked in the ASTD Fourth BEST

awards

American Society for Training &

Development (ASTD)

Recognition Of Commitment

(ROC)

The Institute of Internal Auditors, USA

(IIA)

3.9 Intellectual properties

US. Pat No. 6,751,614 System and method for topic-based document analysis for

information filtering .

An information filtering process designed to sort through large volumes of

dynamically generated textual information, incrementally learning process that

learns as new text documents arrive and the user grades them by providing

feedback. Text-based documents either dynamically retrieved from the Web or

available in a textual repository on an Intranet are represented by applying

keyword weights after capturing the user reasoning for classifying the document

as relevant or irrelevant. When a new item (document) arrives, the learning agent

suggests a classification and also provides an explanation by pointing out the

main features (key-phrases) of the item (document) responsible for its

classification. The user looks at

this and provides hints by showing a list of features (key phrases) that are

responsible for a particular way of classifying the document. This interaction

method contributes to the learning process. The apparatus includes a feedback-

based clustering scheme that models user's interest profiles, a simple neural

adaptation method for leaning the cluster centers to provide personalized

information filtering for information seekers.


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3.10 Offices

America

Brazil

Canada

U.S.A.

Asia pacific

China, Hongkong, India, Japan, Malaysia, New Zealand, Singapore, Taiwan,

Thailand and Korea.

Europe

Belgium, Czech Republic, Denmark, France, Finland, Germany, Hungary, Ireland,

Italy, Netherland, Spain, Sweden, Switzerland and United Kingdom.

Middle east and Africa

Bahrain, Egypt, Jordan, Kenya, Kuwait, Qatar, Saudi arabia, South africa and

United arab emirates.


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Chapter4. Impact of satyam scam

4.1 Impact on global economy and company itself

The chairman, Ramalinga Raju, resigned after revealing that he hadsystematically falsified accounts as the company expanded from a handful ofemployees into a back-office giant with a work force of 53,000 and operations in66 countries.

Mr. Raju said Wednesday that 50.4 billion rupees, or $1.04 billion, of the 53.6billion rupees in cash and bank loans the company listed as assets for its secondquarter, which ended in September, were nonexistent.

Revenue for the quarter was 20 percent lower than the 27 billion rupees reported,and the companys operating margin was a fraction of what it declared, he saidWednesday in a letter to directors that was distributed by the Bombay StockExchange.

Satyam serves as the back office for some of the largest banks, manufacturers,health care and media companies in the world, handling everything from computersystems to customer service. Clients have included General Electric, General

Motors, Nestl and the United States government. In some cases, Satyam is evenresponsible for clients finances and accounting.

The Satyam effect has starting spreading its tentacles, and has proved to have anegative impact on the Engineering students. IT (Information Technology) whichused to be the Mecca of all jobs is now the outcaste. Students are preferring totake jobs in their core branches rather than move to the dwindling IT sector.

I was offered a job as trainee employee at Satyam last year. But after the fiascohas happened at Satyam, I have changed my mind to get suitable job in otherfirm, said Divyadeep Goyal, a student Mechanical Engineering student of

University Institute of Engineering and Technology (UEIT), who was offered anannual package of Rs 3.25 lakh in Satyam.

Echoing similar views, Sumant, another final-year student of the same college,said, The impact of Satyam fraud has been so damaging that we now do nothave any intention to join the IT company. Rather we will look for job in othersectors.
http://topics.nytimes.com/top/news/business/companies/general_electric_company/index.html?inline=nyt-orghttp://topics.nytimes.com/top/news/business/companies/general_motors_corporation/index.html?inline=nyt-orghttp://topics.nytimes.com/top/news/business/companies/general_motors_corporation/index.html?inline=nyt-orghttp://topics.nytimes.com/top/news/business/companies/general_motors_corporation/index.html?inline=nyt-orghttp://topics.nytimes.com/top/news/business/companies/general_motors_corporation/index.html?inline=nyt-orghttp://topics.nytimes.com/top/news/business/companies/general_electric_company/index.html?inline=nyt-org


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The total number of engineering students placed by Satyam from this region wasnot available but some colleges have shared their placement figures.

Almost 80 students from the Institute of Engineering and Technology wereselected by Satyam last year, while 13 students were placed from Punjab

Engineering College (PEC) and seven were from UIET.

Students were offered an annual package between Rs 3 lakh and 3.5 lakh.

According to placement officers of various colleges, engineering students are nowlooking at the core sector, comprising manufacturing and telecom sectors.

The revelations could cause a major shake-up in Indias enormous outsourcingindustry, analysts said, and may force many large companies to investigate andperhaps revamp their back offices.

This development is going to have a major impact on Satyams business with itsclients, said analysts with Religare Hichens Harrison on Wednesday. In the shortterm we will see lot of Satyams clients migrating to competition like Infosys, TCSand Wipro, they said. Satyam is the fourth-largest outsourcing firm after the threenamed.
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In the four-and-a-half page letter distributed by the Bombay stock exchange, Mr.Raju described a small discrepancy that grew beyond his control. What startedas a marginal gap between actual operating profit and the one reflected in thebooks of accounts continued to grow over the years. It has attainedunmanageable proportions as the size of company operations grew, he wrote. It

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

Mr. Raju said he had tried and failed to bridge the gap, including an effort inDecember to buy two construction firms in which the companys founders heldstakes. Speaking of a deep regret and a tremendous burden, Mr. Raju saidthat neither he nor the co-founder and managing director, B. Rama Raju, hadtaken one rupee/dollar from the company. He said the board had no knowledgeof the situation, nor did his or the managing directors families.

The size and scope of the fraud raises questions about regulatory oversight inIndia and beyond. In addition to India, Satyam has been listed on the New York

Stock Exchange since 2001, and on Euronext since January of 2008. Thecompany has been audited by PricewaterhouseCoopers since its listing on theNew York Stock exchange.

Satyam has been under close scrutiny in recent months, after an October reportthat the company had been banned from World Bank contracts for installing spysoftware on some World Bank computers. Satyam denied the accusation but inDecember, the World Bank confirmed without elaboration on the cause thatSatyam had been banned. Also in December, Satyams investors revolted afterthe company proposed buying two firms with ties to Mr. Rajus sons.

Fig 4.2

0

10

20

30

40

50

60

70

Reasearch and

development

Sales and

marketing

Mahindra satyam employees

Employees at similarcompany
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On Dec. 30, analysts with Forrester Research warned that corporations that relyon Satyam might ultimately need to stop doing business with the company. Firmsshould take the initial steps of reviewing the exit clauses in their current Satyamcontracts, in case management or direction of the company changed, Forrestersaid.

The scandal raised questions over accounting standards in India as a whole, asobservers asked whether similar problems might lie buried elsewhere. The riskpremium for Indian companies will rise in investors eyes, said Nilesh Jasani, Indiastrategist at Credit Suisse.

R. K. Gupta, managing director at Taurus Asset Management in New Delhi, toldReuters: If a companys chairman himself says they built fictitious assets, who doyou believe here? The fraud has put a question mark on the entire corporategovernance system in India, he said.

News of the scandal quickly compared with the collapse ofEnron sent jittersthrough the Indian stock market, and the benchmark Sensex index fell more than5 percent. Shares in Satyam fell more than 70 percent.

Mr. Raju was trying to persuade investors that the company was sound. InOctober, he surprised analysts with better-than-expected results, saying he waspleased that the company had achieved this in a challenging globalmacroeconomic environment, and amidst the volatile currency scenario thatbecame reality.

But by late December, it seems he had little support from the board or investors,

and four of the companys directors resigned in recent weeks. Satyam recentlyretained Merrill Lynch for strategic advice, a move that is generally a precursor toa sale.

Mr. Raju said in his statement that he sincerely apologized to shareholders and

employees and asked them to stand by the company. I am now prepared to

subject myself to the laws of the land and face consequences thereof, he said.

4.2 Impact on capital market

Satyam stock is being removed from its S&P CNX Nifty 50-share index from Jan12. Satyam will also be excluded from the CNX 100 index, CNX 500 index and theCNX IT index. Reliance Capital Ltd will replace Satyam in the main index. Satyamhas lost more than 10000 Crore rupee in a single day trading. $8 Crore changedhands at BSE and 33 Crore changed hands at NSE.
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Satyams American Depository Receipts, listed on the New York Stock Exchange,had closed up four per cent at 9.35 dollar day before yesterday, and are expectedto witness a sharp plunge when the American markets open. However the tradinin said stock has been suspended as per the latest reports.

Satyams largest shareholder, Aberdeen AMC, dumped the tainted software

entitys shares on Wednesday, was also a seller in other index stocks like

Reliance Communications and JP Associates. Thus the moral of the story is that

FIIs will be difficult to convince and it will take time before FIIs line up in India and

India loss will be the gain of China. One can read the complete Satyam Fraud

letter written by Ramalinga Raju to understand the impact of his activities in Indian

share market.

The following Fund Houses sold shares in the open market :

(a) Swiss Finance Corp Mauritius Ltd: Sold 7786759 shares at Rs.74.61

(b) Aberdeen International India Opportunities Mauritius Ltd: Sold 9830811 shares

of the company at Rs.43.41

(c) Aberdeen Asset Managers Ltd Aberdeen Global Asia Pacific fund: Sold

4179064 shares at Rs.43.41.

4.3The Satyam Scam Has Dented India Inc.s Image Abroad

Huge losses to investors aside, the Satyam scandal has caused serious damageto India Incs reputation as well as the countrys regulatory authorities outside, thegovernment has said.

Seeking to dismantle the existing board and to nominate ten new directors at thebeleaguered IT firm, the Centre has said in its petition before the Company LawBoard that the interests of the company will not be safe in the hands of thepresent board of directors.

The admission of fraudulent manipulation of the financial affairs has created anadverse impression in the minds of the trade, business and industry across theworld.

This has also resulted in serious damage to the reputation of Indian Corporatesector and the regulatory mechanism in the eyes of the world, the governmentsaid.
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Allowing the government to nominate 10 new directors, the CLB said in its orderthat the present board of directors stands suspended with immediate effect andthe new board should meet within seven days of its constitution and takenecessary action to put the company back on the road.

It also asked the new board to submit periodical reports to the Centre and theCLB on the companys state of affairs.

The CLB also observed that the residual board members at the company after astring of resignations are those who were also party to the impugned decision toinvest substantial funds in the companies related to Raju, the decision of whichwas the starting point of the downward trend in the fortunes of the company.

Besides Satyam, Ramalinga Raju and brother Rama Raju, the government in itspetition has also named the companys CA and auditor Price Waterhouse,Company Secretary as well as all the directors.

This include also those independent directors who have resigned Vinod Dham,Rammohan Rao, K G Palepu and Mangalam Srinivasan, as well as formerCabinet Secretary T R Prasad, V S Raju and interim CEO Ram Mynampati.

The CLB has also asked all the respondents to submit their replies to the petitionby February 20.

The CLB had ordered the Central Government to immediately constitute a freshboard of the company with not more than ten persons of eminence as directors.

The Central Government may also designate one of them as the Chairman of theBoard The said Board will continue till further orders.

The government said in its petition that Satyam has about three lakhshareholders, over 53,000 employees and has clients in over 60 countries,besides India. It has received a number of awards for best corporate governance.

4.4 Satyam scam questions corporate governance

On Jan 9, 2009 - Indias government, its corporate sector and its people are

stunned after the founder-chairman of one of the countrys largest information

technology (IT) services companies admitted to years of falsified profits and an

audacious financial fraud worth 1.5 billion dollars.

The founding promoter of Satyam Computer Services Limited, Ramalinga Raju,

resigned as the companys chairman, putting out a confessional statement


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admitting that roughly 1.5 billion US dollars (or the equivalent of 70 billion Indian

rupees) of the firms past funds were "non-existent".

What has shocked analysts is that the money, that is now supposed to be

fictitious, had been recorded in Satyams balance sheets and books of account

that had been audited by the internationally reputed firm of auditors, Price

WaterhouseCoopers.

Raju, who is politically influential, disclosed details of the fraud in a resignation

letter to the companys board of directors forwarded to stock exchange authorities

as well as the regulator of the countrys capital markets, the Securities and

Exchange Board of India (SEBI).

Of the revenue reported as of Sep.30, 2008, the letter said, almost 1.03 billion

dollars, or 95 percent, never existed.

SEBIs chairman C.B. Bhave described the financial wrongdoing in Satyam as an

event of "horrifying magnitude".

The scam has dominated the India media and what is ironical is that the Indian

word "Satyam" translates as "truth".

A most alarming aspect of the episode was that Raju acknowledged that his

companys financial records had been fudged and manipulated for the "last

several years".

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

the disgraced Raju in his letter.

While there were rumors that Raju had fled India, his lawyer has said he is in

Hyderabad, the capital of the southern Indian state of Andhra Pradesh, where the

Satyam is headquartered.

On Wednesday, Rajus announcement had knocked the companys stock down a

crippling 78 percent and sent the sensitive index of the stock exchange at

Mumbai, Indias financial capital, plummeting by a substantial 7.3 percent. The

share price came down further on Friday.

This scandal came barely a week after the government in New Delhi announced

an economic stimulus package to revive the markets that have been adversely


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impacted by the ongoing worldwide recession.

Until recently, Satyam used to be Indias fourth-largest IT Company, specializing

in developing computer software and business process outsourcing.

Satyam's stock is listed on the New York Stock Exchange; it had business

operations in 66 countries and counted 185 companies in the Fortune 500 list as

its clients and customers.

"Its a wake-up call for the Indian corporate sector," said Ashok Kumar

Bhattacharaya, national managing editor of Business Standard newspaper in an

exclusive interview to IPS. "Companies have to stick to the rule-book," he added.

Investors, along with Indian government agencies, are now demanding answers

to why the value of their stock came down by more than 1.9 billion dollars in oneday on account of a scandal that is being described as "Indias Enron" in

reference to the U.S. energy company that filed for bankruptcy in 2001, leaving

5,000 people jobless and eliminating one billion dollars in employee retirement

funds.

Many of Satyams 53,000 employees are expecting unemployment as the

dimensions of the scandal unfold, investors withdraw and it is discovered how the

companys coffers are almost empty. The 1.5 billion dollar fraud outweighs the

companys entire salary bill for the last year of a little over one billion dollars.

The downfall of Raju, a 54-year old software industry veteran, began nearly one

month ago when Satyam attempted to acquire two companies controlled by his

sons - Maytas (Satyam spelled backwards) Properties and Maytas Infra - for 1.6

billion dollars in order to compensate for the holes in his books of account.

The deal was abandoned 12 hours after it was announced when investors

objected, claiming it was an irresponsible misuse of funds and an instance of

nepotism.

The Maytas deals acted as a red flag for international investors, with a host of

companies like Unpaid Systems of Britain accusing Satyam of fraud, forgery and

breach of contract.

Shortly thereafter, on Dec. 23, the World Bank barred Satyam from offering its

computer services for eight years citing a potential trail of corruption - data theft


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and bribery - that led to Raju.

The last straw perhaps came on Tuesday when an Indian associate of Merrill

Lynch terminated an agreement on grounds of "material accounting irregularities".

Satyams worth estimated at seven billion dollars, barely six months ago, is now

worth less than 330 million dollars.

In an IPS interview, Arun Kumar, professor of economics at New Delhis

prestigious Jawaharlal Nehru University, said the so-called "independent"

directors on the Satyam board were not truly independent and added that auditors

often acted in collusion with corrupt company managers.

"Im not at all surprised that the auditors played along with the top management of

this company and allowed executives to cook books of account," said Kumar whohas authored a book on Indias illegal - or "black" - economy.

"The government is not looking to take over the companies. The corporate world

must respond to this," Kamal Nath, Indias industry and commerce minister was

quoted as saying. "The government should only look at the regulatory part of it,"

he added.

The government has stepped in to investigate all important directors and

employees associated with Satyam who could be involved in the fraud. All those

found guilty could face up to ten years in prison. The auditing licenses of thepartners of PricewaterhouseCoopers could also be revoked.

"The system has to be strong, but individuals make the system. The rules were in

place but individuals broke these rules and threatened the system, says

Bhattacharya.

Though Rajus resignation letter attempts to accept personal responsibility for the

misdemeanors, there is a view that many others were involved and complicit.

Kumar said it was "near-impossible that those close to the inner workings of

Satyam were completely unaware of what was going on".

Whereas some argue that the Satyam scandal will not have a long-term negative

impact on the working of Indias reputed information technology (IT) industry,

others say it could negatively impact Indias booming IT services which chalked


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up overall sales worth 52 billion dollars in 2007-2008.

Anand Mahindra, vice chairman and managing director of M&M, a leading

commercial vehicles manufacturing company, went on record stating: "This

development has resulted in incalculable and unjustifiable damage to Brand India

and Brand IT in particular". He added that the "whole of Indian industry should be

tarred with the same brush".

But other corporate managers see positive fallouts to the Satyam episode. After

what happened there is bound to better self-regulation among Indian IT

companies, said Puneet Kumar, a top manager at WIPRO, a globally respected,

Bangalore-based IT company.

Satyam was an aberration, Puneet Kumar said. The fact is that the IT industry

thrives on good reputation and every major in the business lays great emphasison maintaining global standards of corporate governance.


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Chapter 5. Post scam era

Some 2 years after B Ramalinga Raju owned up to cooking the books ofSatyam

Computerand the Mahindra group won the bid to acquire the scandal-struck

software firm, a few crucial milestones have been crossed in the long journey

back to recovery and respect.

CP Gurnani is a man in a hurry. It is nearly impossible to catch up with him. He's

either in Delhi, where his home is; or in Hyderabad, at the headquarters of

Mahindra Satyam, known till not too long ago as Satyam Computer Services; or in

Pune where Tech Mahindra (TechM), the flagship IT outsourcing company of theMahindra group is based; or in Mumbai where the auto to software conglomerate

is headquartered.

When Gurnani isn't in any of these cities, he's likely to be on a flight headed

overseas to meet clients. Gurnani, a former head of TechM's global operations,

took over as CEO ofMahindra Satyam in June 2009. That's two months after the

Mahindras won the race to acquire the beleaguered IT services firm for a little

under Rs 2,000 Crore.

The sale was triggered after founder B Ramalinga Raju confessed in early 2009 tofudging the books of the then fourth largest software exporter. So if Mahindra

Satyam, like Gurnani, is in hurry, you know why: the market value of the company,

which in better times stood at over Rs 12,000 crore, crashed to Rs 2,700 crore

after Raju confessed to the scam. Today that figure is a more respectable Rs

8,300 Crore, but Mahindra Satyam still has a long way to go.

5.1 Growth phase

With its books in order and two major lawsuits settled - a class action suit slappedby US shareholders and a lawsuit by Upaid Systems - the company now has itsagenda cut out: to go after large projects and win back customers. Themanagement is also banking on a merger with TechM to get the full benefits of theacquisition.

"The lawsuits were at the back of clients' minds. Some of them were demands for
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$1-1.5 billion and, if we couldn't pay, we would have had to declare insolvency,"says Vineet Nayyar, the company's 72-year-old chairman and strategy lynchpin.

A report by technology research firm IDC flatteringly describes Mahindra Satyam'sjourney as the Rise of the Phoenix, but Nayyar, Gurnani and the A team know it's

still early days yet as the company steps up the pace. "We see it (the journey torecovery) as three phases: resurrection, rejuvenation and getting back intogrowth. Now we are in the growth phase," says Gurnani.

"There is a sense of speed, relentless hunger and pressure on all to perform,which wasn't there earlier," adds AS Murty, CTO, describing the mood inMahindra Satyam.ASM, as the soft-spoken CTO is known, was briefly the CEOwhen the government took control of the company after Raju stepped down.

He and T Hari, chief marketing and people officer, are two old Satyam handsGurnani retained in the core team. Rakesh Soni, COO, and Atul Kunwar, global

head of sales, came in from TechM. Vijayanand Vadrevu, chief strategy officer,joined from Wipro in 2009.

Manish Malhotra, who is chief vertical solutions officer, re-joined Satyam fromPatni Computer a few months ago. The good news for Mahindra Satyam is thatmany employees are now willing to come back. Sriram Papani, who spent 13years in Satyam and who started the enterprise business services practice, re-

joined in February as head of that practice. Some 750 people who left thecompany have returned, says Hari.

In the past two years, the company has recruited over 10 senior executives mostlyin client-facing and senior sales roles to fill the gaps created when several leadersquit after the new management took over. One big hurdle was ensuring the fusionof the old with the new.

As an insider puts it: "There were two tsunamis. The first happened because ofthe scam and the second because of the cultural divide." A senior executive at asouthern IT services firm explains the Mahindras may have been a bit hard on theold guard.

"They alienated many senior leaders with their approach when they took over.These leaders carried a lot of credibility with customers. The culture in companiesin the South is softer and you need to respect it," he says. Perhaps the largergoals ensured the team worked as one. "In fiscal 2010, the focus was on keepingexisting customers. A year later the focus, while still on keeping customers, wason adding new ones, says Vadrevu. "Now it is time to kick-start the US growthengine."
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5.2 Firing on all fours

The best indicator of Mahindra Satyam getting its act together lies in the numbers.Over the past five quarters, sales have climbed, operating margins have pushedahead into double-digit territory and the company is in the black (see On theMend). Growth in revenues has been achieved by hanging on to existingcontracts and squeezing out incremental business from existing customers.

The top brass relied on Operation Win Room, a war-room initiative of sorts, to winorders in the range of $5 million. This helped keep the cash registers busy at atime when Mahindra Satyam lacked the bandwidth to chase larger deals, of $25million and more.

For Satyam's recovery to continue playing out in the near term, the manufacturingsegment has to fire. Manufacturing clients contribute about 30% of Satyam'srevenues, making it the most important segment. Similarly, in terms of servicelines, EBS, which has historically been Satyam's strength, is its soundest betbringing in about 42% of revenues.

"EBS is a still a differentiator for us," says Papani. Engineering services has alsobeen a strong area. "Because stickiness in this service line is high, it saw the leastcustomer attrition," says Karthikeyan Natarajan, who heads engineering services

for Satyam.

"Today Mahindra Satyam is perceived by customers as re- energized, and gainingin a competitive market. They are reclaiming some lost cust

the final minor project - copy

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