SATYAM SCAM
The Story Of India's Biggest Corporate Fraud.
know About SATYAM COMPUTERS
SATYAM SCANDAL is India’ s Biggest financial fraud of 2009 but are you fully aware of this scam? , Do you know what happened?, What is the company about?, Who was the founder? Why and by whom this scam was done? What was the court decision? These are all the questions that come to mind whenever we listen to or read about any scandal. Without putting you on a waiting list let's start with the whole story. According to my research, I came to
SERVICES. , India. B. Ramalinga Raju and his brother Rama Raju created this company in 1987, and its head office is in Hyderabad
Its operating segments include IT and Business Processing Outsourcing, or "BPO," and the corporation engages in computer programming, consulting, and associated services. The fourth-largest software company in India and one of the top five IT companies in the country was Satyam Computers. Additionally, Satyam Computers became a public limited company on August 26, 1991, and it launched a public offering in 1992. A large number of Fortune 500 firms were among its many clients, numbering 185 in all.
The business was additionally listed on the New York Exchange, National Stock Exchange, and Bombay Stock Exchange. It employed 52,000 IT specialists globally and nearly generated revenues of over $2 billion by 2008.
When the business was doing successfully, the biggest financial fraud took place. I learned that the company's founder and chairman, Ramalinga Raju, admitted to inflating the company's assets by $1 billion in January 2009, resulting in criminal charges and the stock price of the company collapsing. You must believe that this was the only thing that occurred. Yes, but I am going to include all the details that I acquired regarding this issue throughout my research.
Until 2010, the Satyam Computers Services matter was the biggest corporate fraud in India. An Indian outsourcing firm's founder and directors fabricated the financial records, artificially raised the stock price, and embezzled substantial sums of money from the business. Much of it was used to buy real estate. When the real estate market in Hyderabad crashed in late 2008, a trail leading back to Satyam was left. When Chairman B. Ramalinga Raju admitted that the company ' s accounts had been fabricated, the matter was made public in 2009.
Satyam Computers founder and former chairman B Ramalinga Raju has moved Hyderabad’ s City Civil Court over the Bad Boy Billionaire, an upcoming web series on Netflix. While the series was scheduled for its telecast from this September 2nd, Raju has moved the court raising objections that the series is based on his personal life. Ramalinga Raju’ s advocate S Niranjan Reddy has conveyed to the City Civil Court that this series would not only damage his reputation and it may also influence his pending case.
After hearing the arguments, the City Civil Court has issued injunction orders against the telecast of the said web series. It can be noted that a Special CBI court had awarded Raju seven years imprisonment in 2015 for the infamous Satyam scam which was India’ s biggest accounting fraud in the corporate world. However, Raju has filed an appeal and the case is still pending
Why did Raju commit such a massive fraud? It's all because Ramalinga Raju became sidetracked from the IT industry to real estate, so he began purchasing properties in the name of his family members. When Raju needed more money, he then began stealing from Satyam Computers. For many years, Satyam's books indicated earnings that never materialized and money in the bank that never existed, inflating the stock price. Raju then sold shares with his pals. The accounts also revealed $3 million in "salary payments" to individuals who never existed. Members of the board received these. The fabricated accounts were used to secure low-cost loans in the United States, which Raju stole and never transferred into the accounts. A significant portion of the funds was lost on Hyderabadi real estate ventures. Whistleblowers started to be heard after the 2008 real estate market crash when the money disappeared. The affair was made public by Raju's failed attempt to utilize Satyam to acquire a real estate firm. An organized scheme to swindle stakeholders was the Satyam scam. Increased sales, incomes, and cash levels were achieved by Raju and a small group of accomplices, giving them a fictitious sense of financial success. The fraudulent activities included falsifying invoices, fabricating bank statements, and inflating client numbers. The failure of corporate governance procedures was demonstrated by auditors tasked with upholding shareholders' interests failing to find the inconsistencies.
After this The consequences were catastrophic. The sudden decline in share prices significantly reduced investors' capital. Thousands of employees had to deal with uncertainty as the company struggled to survive. Investor confidence in India's corporate sector was affected by the Satyam Scandal, which raised questions about accountability, transparency, and moral standards. After the incident, the Indian government stepped in to save stakeholders' interests and prevent Satyam from collapsing. A protracted road to recovery was ultimately started when Tech Mahindra bought the company. For Indian regulators, the incident served as a wake-up call that resulted in significant changes to corporate governance, accounting practices, and audit regulations.
Now, several doubts have arisen in your mind as well as mine, such as how the Raju brothers executed this huge deception. Raju essentially began manipulating Satyam's financial records in 2003 to provide a more optimistic picture of development and profitability than the company had achieved. Along with his brother Rama Raju, Satyam's managing director, and several other top executives, Raju took part in a network of fraud that involved fabricating audit reports, fraudulent invoices, clients, bank accounts, and even employees. To make matters worse, Raju invested in his family's businesses, like Maytas, using Satyam's money for his gain in real estate and other ventures. For six years, Raju fooled regulators, auditors, investors, and analysts, who were caught off guard by his fabricated data and false accolades.
One of the most valuable IT companies in India, Satyam saw its stock price soar from Rs. 10 to Rs. 544 in 2008. Additionally, the company has won honors for social responsibility and corporate governance, including the Golden Peacock Award in 2008. The global financial crisis, which devastated the IT sector, coincided with the facade beginning to fall apart around the end of 2008. As Satyam's sales and profitability declined, Raju came under growing pressure from lenders and creditors to pay his debts. In addition, the World Bank looked into Raju's conduct and prohibited Satyam from taking part in any of its projects for eight years due to Raju's illegal employee benefits. In a last-ditch attempt to preserve his crumbling business, Raju launched a disastrous $1.6 billion bid for Maytas in December 2008 using Satyam's cash reserves. However, this tactic completely backfired, infuriating Satyam shareholders and board members who perceived the deal as a cash diversion and an outright conflict of i O l 12 h i d f R j b k f h
The story is not over, though. After being trapped and left with no other option, Raju eventually admitted to his lies. In a letter to Satyam's Board of Directors and regulators dated January 7, 2009, he admitted inflating the company ' s assets by a whopping Rs. 7,800 crores, or about 94% of them. He also admitted that he had overstated Satyam's earnings by Rs. 5,040 crores, or almost 75% of the business's earnings. Raju claimed that because of his independence, neither his board members nor his auditors were aware of his illicit activities.
In response to Raju's admission, the Serious Fraud Inquiry Office (SFIO), the Securities and Exchange Board of India (SEBI), and the Central Bureau of Investigation (CBI) launched a thorough investigation. Knowing that the law must intervene here for the investigation and uncover the truth, these organizations launched their investigations. Raju and his friends were apprehended and charged with several crimes, including fraud, breach of trust, insider trading, forgery, money laundering, and forgeries. Let's now explore who was responsible for showing the public Ramalinga Raju's real face. An anonymous whistleblower revealed the Satyam scandal by sending emails to Krishna Palepu, one of the company's directors, exposing the fraud. Palepu forwarded the emails to a different director and S. Gopalakrishnan, a partner at PwC who served as Satyam's auditor. The emails were sent under the identity of Joseph Abraham. The media and SEBI were also made aware of the scheme by the whistleblower. The emails sparked an inquiry by the auditors and authorities, which ultimately resulted in Raju's admission and incarceration. This raises a new query, that is, how Raju was able to escape the scandal. Raju allegedly got away with the Satyam scandal for six years by taking advantage of loopholes in the accounting and auditing processes and misleading stakeholders with his charm and charisma. He had a network of associates that included his brother Rama Raju, the managing director of Satyam, and several other senior executives. Additionally, he paid employees of the World Bank and other clients to secure contracts and avoid examination.
Satyam's auditor, PricewaterhouseCoopers (PwC), was Raju's most important ally in the scheme. PwC did not fulfill its duty to review Satyam's financial statements and look for fraud. PwC participated in the falsification of the accounts with Raju, which was against the auditing standards and the code of conduct. Additionally, PwC disregarded warning signs from informants who sent Krishna Palepu, one of Satyam's directors, anonymous emails revealing the crime. Raju also used his standing and power to win the respect and admiration of the media, analysts, investors, and regulators. He portrayed Satyam as a prosperous and moral business that has won numerous awards for social responsibility and corporate governance. He was also praised for his business knowledge and commitment. To escape suspicion and judgment, he maintained a low profile and a modest demeanor.
When Raju tried to use Satyam's cash reserves to buy Maytas, a familyowned real estate company, his scheme was exposed in 2009. This choice backfired, sparking a significant uproar from Satyam's board of directors and stockholders.
With no other choice, Raju decided to own up to his dishonesty. He acknowledged that he had exaggerated Satyam's assets by Rs. 7,800 crores, or about 94% of its total assets, in a letter to the company ' s he worked board were
Byrraju Ramalinga Raju, the chairman of Satyam, resigned on January 7, 2009, admitting to defrauding the company of 7,000 crore rupees through various forms of accounting fraud. The whole corporate world reportedly felt surprised and scandalized. The matter was taken over by the CBI in February 2009, and over the course of the following year, three partial charge sheets (dated 7 April 2009, 24 November 2009, and 7 January 2010) were issued. Later, a single charge sheet containing all of the charges from the discovery phase was created. Byrraju Ramalinga Raju was found guilty on April 10, 2015, along with 10 other conspirators.
As was previously stated, there are always consequences for any incident, and this is the case with the Satyam Scandal.
Raju was detained and charged with criminal conspiracy, breach of trust, and forgery two days after the confession was made. On that day, the shares dropped to Rs. 11.50 from 2008 highs of Rs. 544.
When the CBI searched the home of the youngest Raju brother, they discovered 112 sales deeds for various land purchases. Additionally, the CBI discovered 13,000 fabricated personnel records made by Satyam and asserted that the scandal cost over Rs. 7000 crores. After being found guilty, PwC had its license provisionally suspended for two years. Investors also became several other companies that PwC audited. As a result, these companies' share values decreased by 5% to 15%. The Sensex fell 7.3% as a result of the scam revelation.
Now in disarray were the Indian stock markets. Realizing the potential effects this could have on future FDI and stock markets, the Indian government acted swiftly. After they started looking into it, Satyam received a new board quite soon. Within the next 100 days, the board
Now in disarray were the Indian stock markets. Realizing the potential effects this could have on future FDI and stock markets, the Indian government acted swiftly. After they started looking into it, Satyam received a new board quite soon. Within the next 100 days, the board wanted to sell the business. To expedite the sale, the board hired Goldman Sachs and Avendus Capital. Barucha, a retired SC justice, was selected by SEBI to supervise the transaction to foster trust. On April 13, 2009, many companies submitted bids. Tech Mahindra submitted the winning bid, and before the deception was discovered, it later purchased Satyam for a third of its original worth. Raju and two other defendants received bail on November 4, 2011. Raju, his two brothers, and 7 other people received a 7-year prison term in 2015.
"We are shocked by the contents of the letter. The senior leaders of Satyam stand united in their commitment to customers, associates, suppliers, and all shareholders. We have gathered together at Hyderabad to strategize the way forward in light of this startling revelation." On 10 January 2009, the Company Law Board decided to bar the current board of Satyam from functioning and appoint 10 nominal directors. "The current board has failed to do what they are supposed to do. The credibility of the IT industry should not be allowed to suffer," said Corporate Affairs Minister Prem Chand Gupta. Chartered accountants regulator ICAI issued a show-cause notice to Satyam's auditor PricewaterhouseCoopers (PwC) on the accounts fudging.
ICAI President Ved Jain said: "We have asked PwC to reply within 21 days."
Vadlamani Srinivas, Satyam's former CFO, was also taken into custody by the Crime Investigation Department (CID) squad on January 10, 2009, the same day. Subsequently, he was taken to jail by the police. The government proposed three individuals to Satyam's board of directors on January 11, 2009: well known banker Deepak Parekh former NASSCOM president Kiran
After this whole scandal here’ s the reaction of the government to the Satyam scam:
Companies Act
• The Companies Act of 2013 takes effect and replaces the Companies Act of 1956. The terms of the new statute make corporate fraud a crime. The obligation to reveal Satyam's deception to cost accountants, auditors, and corporate secretaries is specifically defined and named in the Act. A new requirement for auditor rotation was also put into place, calling for the replacement of auditors after five years and the changing of audit firms after ten. The Director's Responsibility Statement should be included in the Board of Directors' Report, it also states.
ICAI- The Institute of Chartered Accountants of India
• In its audit report, the accounting organization emphasized the auditors' thorough reporting of fictitious assets and potential liabilities.
SEBI
• The SEBI Regulations 2015 (Listing Obligations and Disclosure Requirements) were passed, and they created standards for disclosing significant events that affect investors' ability to make decisions and for reporting actual and suspected frauds.
Serious Fraud Investigation Office (SFIO)
• This regulatory body was established under the Ministry of Corporate Affairs' supervision and was given the status of a statutory organization under the Companies Act of 2013.
• It investigates financial and business fraud in India. Best practices for
The Satyam controversy has been dubbed India's Enron scandal by analysts there. Some social critics consider it as more of a component of a larger issue with India's family-owned business environment.
State Farm Insurance and Merrill Lynch, which is now part of Bank of America, ended their contracts with the business as soon as the news broke.
Additionally, Credit Suisse stopped covering Satyam. Additionally, it was said that PricewaterhouseCoopers, Satyam's auditing firm, will be investigated for their involvement in the affair. The stock market regulator SEBI also warned that its permit to operate in India might be suspended if found guilty. The famous Golden Peacock Award for Corporate Governance under Risk Management and Compliance Issues was given to Satyam in 2008; however, it was later revoked in the wake of the controversy.
Satyam stock trading has been suspended by the New York Stock Exchange as of January 7, 2009. The National Stock Exchange of India has declared that Satyam will be dropped from the S&P CNX Nifty 50-share index on January 12th.] Two days after admitting to faking the company ' s finances, Satyam's founder was taken into custody. Ramalinga Raju was accused of various charges, including forgery, breach of trust, and criminal conspiracy. Compared to a high of 544 rupees in 2008, Satyam's shares dropped to 11.50 rupees on January 10, 2009, their lowest level since March 1998. Satyam shares reached their high on the New York Stock Exchange in 2008 at US$29.10. They were
There are a few final words from me as the researcher of this entire issue that I would want to provide to wrap up this whole fraud story.
How human avarice and ambition affect behavior is illustrated through the Satyam scam case. The Satyam matter underlines the necessity for ethics, sound governance, and accounting standards. Emerging markets like India require corporate governance and securities regulation. Greater regulation was prompted by the Satyam Computers affair. Investigating major financial crimes promotes best practices and assists in incident prevention.
There hasn't been a scam that has had the same impact on audit and CA businesses as the Satyam Scam. The complexity of these frauds has increased the necessity of these specialists' services while also emphasizing the significance that ethics and CG play in their work. These kinds of white-collar crimes reflect poorly on the company, the sector, and the nation as a whole. We sincerely hope you enjoyed learning about our Non-fictional realism story on the Satyam Scam.
