Ramalinga Raju Chairman Satyam Computers resigns : Irregularities

by Ravi Dixit | January 6, 2009 at 11:55 pm

12127 views | 52 Recommendations | 40 comments

Ramalinga Raju Chairman Satyam Computers (NYSE: SAY ) resigns over Financial Irregularities. A few weeks back India's leading financial daily reported that he had sent in his resignation to the Board and as it was confirmed today that he has resigned due to massive financial irregularities. He has admitted that the books of the company were inflated by INR 5040 crore, translating into INR 50400 million.

Update 22:22 IST The trading on SAY ADR has been suspaneded on NYSE. PwC has refused to comment on the Scam citing client confidentiality and has commented that they are studying the letter from Raju.

Update 19:34 IST Satyam ADR down 90% in pre market trade on NYSE. It seems that US markets are more severe with the stock than Indian counterparts.

Contact Points in Satyam:

For investor queries please contact: Investorrelations@satyam.com

For media queries please contact: mediarelations@satyam.com or call +91 9845183710

SEBI Chairman on Satyam SCAM

SEBI Chairman C B Bhave is talking to the media and calling the developments baffling and is also talking about the Statutory Auditors of the Company PwC and how they certified the company accounts for the last six years without getting a wind of any wrong doing !

PwC - The Statutory Auditors: MUM is the Word

Follow the link below to read about the Ethics and Business conduct of PwC which they claim is based on excellence, teamwork and leadership!! Big words, but they are yet to make a statement on clearing their position.

Ethics and business conduct
PricewaterhouseCoopers ("PwC") is one of the world’s pre-eminent professional services organisations. As professional advisers we help our clients solve complex business problems and aim to enhance their ability to build value, manage risk and improve performance. As business advisors we play a significant role in the operation of the world’s capital markets. We take pride in the fact that our services add value by helping to improve transparency, trust and consistency of business processes. In order to succeed, we must grow and develop, both as individuals and as a business. Our core values of excellence, teamwork and leadership help us to achieve this growth.

Investor Confidence Shaken:

The Investor confidence is really shaking and it is hard to digest that after two big stock market scams, there was a possibility that a so called giant could have such inflated figures. It has long been discussed in undertones that a lot of so called Indian Stock Market Giants follow window dressing to show inflated profits, but this is the first time that a fraud of such scale has emerged in a huge corporate giant of the size of Satyam. Satyam employs in excess of 50,000 employees and the impact on the life of these individuals is also a matter of concern.

ICAI Reaction to the Satyam Scam:

NEW DELHI: The apex body of Chartered Accountants ICAI on Wednesday said any member of the body found guilty in the Satyam financial wrong

doings would be severely punished and the auditors could even be barred from practising, for the lifetime.

Stock Market Updates January 7, 2009

Update: 16:02 IST The Mumbai Sensex is still reeling under the shock of the Financial Fraud exposed today by the Satyam Chairman and has closed 749 points or 7.25 % down from the opening numbers. Satyam closed at INR 40 , down 77% and it has taken down the entire IT index down by 9%. Satyam obviously for the wrong reasons was the most active counter on the Stock Exchanges today followed by Reliance.

All IT Industry leaders are promptly calling it an isolated incidence. All eyes are on the ADRs of Indian IT Companies in USA and all of them are expected to undergo big hammering with Satyam leading the way when the US browses open later today.

12:52 IST: The Satyam Script is down 61% and trading at INR 58 at 12:15 IST. The Indian stock exchange SENSEX is trading down 594 points and is down by 5.75% at

The Satyam Maytas deal that was hammered down by investors and later Satyam was forced to withdraw from was a last ditch effort to fill in fictitious assets.

The entire letter of Ramalinga Raju can you found here (Click Here). He is stating that none of the board members had the knowledge of the irragularities and that he or the MD of the company had not materially benefitted from it. Also that he has not sold his shares in the last eight years.

This raises an eyebrow over the Auditors of the firm PricewaterhouseCoopers (PwC), their auditors for the past six years and have been giving them a clean chit!!!

Satyam's Ramalinga Raju resigns from the board. The company is forming a task force to address the situation. Meryll Lynch to be entrusted to explore merger opportunity.

Satyam Computer Services Ltd informed the National Stock Exchange: "The Company is in receipt of the resignation tendered by Mr B Ramalinga Raju, Chairman of the Company, who shall continue in the position only till such time the current board is expanded and the continuance is just to ensure enhancement of the Board over the next several days or as early as possible".

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Sanjay Jha

at 00:28 on January 7th, 2009

Thanks Ravi, Very important development. I think this is first time corporate India's fraud has been detected. There are many such companies who openly defies the law and use their company as personal fiefdom. At least Satyam saga will open the eyes of Indian regulators. This is India's biggest corporate fraud.

Raguram (not verified)

at 01:57 on January 7th, 2009

I checked the US GAAP statement prepared as on 31 March 2008, it shows a very clear statement saying bank deposits of about Rs 3400 Crores. If that is that case there are only two options possible:

a) Price waterhouse did not even bother to check if indeed bank deposits exist. Obviously documents could prove the fact but remains to be seen what auditors did

b) The amount did exist as of march 2008, but vanished subsequently into the Maytas Minehole.

Either way, it speaks volumes on internationally acclaimed Auditors and their role, corporate Governance in the company and the role of Board of Directors. If indeed the fraud is as explained by Mr.Raju, the complete BoD and the Aditors should be prosecuted for this scam.

Ravindra S Adil (not verified)

at 09:52 on January 11th, 2009

Dear Raguram,

It is certain if INR 5000+ crore were missing for so many years auditors own a responsibility. Your analysis is absolutely right, only those two conditions can be true. In scenario (a) auditors were not negligent, rather they were criminally involved. I donot see why an auditor will not confirm cash balances. In case of cash with bank, a reconciliation is a must. In case of cash in hand, physical verification and that too on last financial day and randomly is very important. Unless PwC thought that a sum of INR 3400 crore was not material.

In scenario (b), I don't think auditors can be implicated. They are not supposed to handle client's day to day business. I don't think any company obtains a prior permission of its auditors before they sign cheques.

I personally believe, PwC should have adequate records in its own office to prove how such a great descrepency can exist. Currently, Raju's own statements provide adequate and probable cause to authorities to act against PwC. The onus to prove that PwC is not involved rests on them. I see adequate grounds for ICAI to shoot a show cause notice. It can be a big black blot on the profession. If it waits for years of investigation to complete, it is going to lose its respect.

Paschen

at 02:18 on January 7th, 2009

Well done Ravi, good post. This is important news in deed.

Vedant (not verified)

at 04:10 on January 7th, 2009

Bank Confirmations is a regular procedure, therefore it makes it clear that either the bankers had colluded with the Company or auditors overlooked the procedures. However the possibility of fudging the confirmations can not be ruled out.

The auditors can not wash hands from their responsibility and they must come out and defend themselves. It is apparent that some negligence was there at the end of the auditors.

Moreover if the same was happening over the years its is a little arcane to understand that it was out of the reach of partners.

The way things are shaping up both the auditors and bankers are in soup. ICAI must take stringent actions to ensure that the auditors stick to the professional standards in future else the audit service will be of little use and may not be considered reliable in future.

Ravi Dixit

at 04:12 on January 7th, 2009

Thanks Sanjay, Paschen, Raguram, Vedant for your comments. This brings in focus the role of Auditors in particular and in a broader the Rating agencies that certify/rate these firms without a second thought. I think the model of auditing the accounts of your masters (As the company pays the Auditors for their services directly) is flawed.

Sanjay Jha

at 04:22 on January 7th, 2009

Indian Stock Market has sharply reacted to resignation of the chairman of Satyam Computer Services. The Share prices of Satyam computers a Fortune 500 companies, tumbled on Wednesday after disclosing major accounting irregularities. The Share prices have gone down to 77 percent.

Shares of Satyam plunged as much as 72.70% to a low of Rs 48.90, but was later trading at Rs 50, down 72.08% in the afternoon trade on the BSE.

The scrip, which had opened at Rs 179.10, plunged within minutes of Satyam Chairman and Managing Director tendering their resignation.

Analysts believe investor confidence has shattered completely as the company was operating its business based on entirely false balance sheet.

"The Satyam case is entirely disastrous and the investors have been completely misguided and misled. People will not think more in the company as some more frauds may be revealed in the near future," Ashika Stock Brokers' Research head Paras Bothra said.

azzayindia

at 04:27 on January 7th, 2009

these richcorporate Lizards play with hard earned money of the middle class and vanish.He should be arrested and snt to jail for false balance sheet

hussain

at 04:40 on January 7th, 2009

The political frauds of Indians are also going to be unveiled shortly just like this fraud of corporate India.

Ravi Dixit

at 04:42 on January 7th, 2009

At least we are not in a denial mode and do a lot of introspection and learn our lessons unlike you Hussain!! Learn from 1971!!

hussain

at 04:48 on January 7th, 2009

Please shed enmity with Pakistan and see carefully the statements of your leaders, being issued as part of vicious propaganda against Pakistan, following the Mumbai attacks. All of the Indian leaders are daily denying their own statements.

Ravi Dixit

at 04:52 on January 7th, 2009

Sorry I do not have any problems with Pakistani people..The common man is very hospitable towards Indians. It is you who is one of the few misguided persons. Read Dawn and Watch GEO TV's expose about KASAB. BTW this is going off track with the thread so I will stop at that only.

hussain

at 04:59 on January 7th, 2009

Okay, if you think I am one of the few "misguided" persons, I think you are not only misguided yourself but also misguiding others. Perhaps you do not know that truth is always bitter.

Sanjay Jha

at 04:53 on January 7th, 2009

Hussain, Thanks for your comments. I think story is about a financial fraud committed by an Indian company. Why are you linking two unrelated issues here. If you have to comment something on this please feel free otherwise don't divert the topic of this post.

hussain

at 05:01 on January 7th, 2009

You are welcome Sanjay and I know the story is about a financial fraud but what I did say, Mr Ravi might have understood. Moreover, a fraud is always a fraud, whether it is political or financial. Is it not?

Sanjay Jha

at 05:07 on January 7th, 2009

Hussain, While i agree with that a fraud is a fraud but i can't allow you to use this post something which is not related to this story. Why don't u post about local stories. I read so many interesting stories in your newspaper and try to do it. But it would be great if we have active people writing locally. Rumana does a brilliant job of bringing so many local art and cultural story from her city. I was reading there was massive power cuts across the problem. Is it over? How is cold affecting you guys? Please also write about other local stories which world would love to read. Best, Sanjay

azzayindia

at 05:03 on January 7th, 2009

Because Hussain knows the financial fraud committed by Pakistanis to the point where they fund terrorists who not only kill innocent people in Karachi but Mumbai too.

but whenever you talk of terrorist in Pakistan he takes it personal as if the terrorist are his brothers.

May be he can explain in some other post.

Rajesh Sood (not verified)

at 05:14 on January 7th, 2009

Hi,

1. I live in New York city, dealing in NYSE/ NASDAQ stocks as a profession. These WHITE 'gora' guys forget Enron type frauds very soon. But bad news from developing countries stays in their minds for a long, very long time. The FII's exodus will be completed from India resulting in Sensex diving and delaying its recovery.

2. All directors of Satyam must be taken to task, whether living in USA or India. Directors cannot plead ignorance. Directors are not appointed only to enjoy perks. They hold public trust. Many investors and employees will be ruined by irresponsible acts of the directors, bankers and auditors. It is a sad day for Indian corporate in particular and my India in general.

Rajesh Sood

canada_america@yahoo.com

Ravi Dixit

at 05:23 on January 7th, 2009

Hi Rajesh,

I do not think that this will have a long term impact on Sensex or lead to FII exhodus from the country as India is the one of the only few large economies that will actually continue to grow. To make any returns on ones money in the times of recession, India is one of the very few investment destinations.

Cheers!! Times are not so bad.

Rajesh Sood (not verified)

at 05:43 on January 7th, 2009

Hi Ravi,

Let's hope for the best.

Bye all, bye forum.

Take care guys.

Sanjay Jha

at 05:49 on January 7th, 2009

Hi Rajesh, Thanks very much for your comment and i appreciate your sentiment. Can you please restrain from using racial words. Please write your experience about this scrip at NYSE/NASDAQ, Best

Raghuram Marur (not verified)

at 05:33 on January 7th, 2009

Thanks for all the update guys.

Kishor Jagirdar

at 06:22 on January 7th, 2009

For years some of the Indian Corporates have been treating the factor of corporate governance as a class room stuff. A thing that one should leave in the class room and go as in reality it doesn’t work that way. By the sheer enormity of the size of the country and the lack of civic responsibility among the population has made one feel that they can get away with anything and everything by bribe or using influence.

This is the begining of the vortex that has been created by the recession.

God only knows how long this recession will last. Some experts compare the Japanese recover that took 18 years while wells <?xml:namespace prefix = st1 />fargo bank analyst predict it to be 3 years.

In between this the market will under go serious corrections and the trend of falsification of accomplishments and business workings will be exposed in hordes now with the impact of Satyam episode which is going to forever go into history as the Biggest corporate fraud and dent the achievements of all other corporate world as well with suspicion .

Accounting firms all across the country barring a few exceptional ones always are handy in window dressing of books of accounts for attracting investment .Entrepreneurs assume that they can manipulate the system and get away with all the interpolation and non disclosures. The board members rarely examine their responsibilities in full and fall prey to the high perks and status symbols.

Sadly, Satyam will become a case study in business ethics at par with Enron and others in the infamy hall of unethical business practices. The impact is also very severe on the 50,000 employees of Satyam as now the prospect of the company in terms of merger or even restoring the status of the company to its former glory is very bleak. Only a miracle can stall its fall.

I do fully agree with Ravi Dixit.

This will send shock waves and scare a few FII away .But better sense will prevail and investment community will change gears from being reactionary to proactive and see that larger picture of the Indian economy .In the absence of the US only India can be an attractive destination for investors.

asnk nag (not verified)

at 07:34 on January 7th, 2009

Hey Hussain,

You Pakistani's are testing our patience and taking advantage of it. If we are out of patience Pakistan will vanish from the world map.

Jai hind

Paschen

at 07:38 on January 7th, 2009

asnk nag (not verified) Please do take notice of the Code of Conduct and refrain from personal attacks.

vigyan (not verified)

at 09:12 on January 7th, 2009

Few months back, When i saw the maytas - hyd metro deal, i felt that the deal is very good.. where the maytas will build,operate and maintain the metro rail system, in proposed routes by govt.. they will get the land from govt...
the model of operation is - they pay in turn to govt 35,000 crore in 35 years, for this deal... they get this by charges and ads displayed on metro... its like highway and toll gates..
so if they are paying 35K crore to govt, how much maytas would be getting???

then i thought it would be nice if satyam get maytas metro project for design and IT.. that would be a big project for satyam... like GE has its US metro transport projects with satyam...
transport projects are really big ones, and most beneficial ones...
later i came to know that satyam is doing maytas project... and one of my colleague is into that project...

ramalinga raju has started EMRI(108 service), and till one half year back he was running it by his own money.. later he expanded services to other cities in AP and now to many other states...
last year in satyam annual day meeting, ramalinga raju spoke about EMRI and said it is doing very well and saving lot of lives... now EMRI is shared with govt. also...
all IT services for EMRI, will be provided by satyam.. including vehicle tracking, maintaining routes, hospital information etc... so if EMRI gets bigger satyam gets more revenue from EMRI...

so ramalingaraju developed different projects in home country such that, they will benefit satyam in a good way... So even if US gets into recession, there are many other projects that are supporting satyam very well, like for coming FIFA satyam is official IT sponsor, and satyam expanded to may other parts of europe, africa etc...

so few days back, when i heard satyam maytas aquisition, i felt it was a very good deal... seeing the bright future of maytas and its infrastructure projects, and his relation with YSR, I thought satyam will be benefited most, as it is investing in infrastructure company in a developing country, where much scope is there for growth.. so right now satyam's profits can be shared with maytas in construction phase and maytas can share its profit in later stage, when it is fully operating... I thought this would make satyam very big....

Just a day later the shares prices went down by 50% and investors made big comments on board, and deal was taken back...
investors and media said, how can a board agree to buy a property that is held by raju family and why the maytas was valued at 1.2billion...
and they said it wil be a injection of satyam's cash reserve into raju's family...
some said what raju knew abt infra, instead it is good for him to continue with software...

But maytas is having good projects in hand and a land bank of 6000 acres, so the valuation is right, may be it is a bit over valued, but that should be accepted, seeing the future scope...
When raju started software in india 20 years back, when not all people realised the growth potential, investors encouraged him in later stages... and raju is well known in AP as a rich raju family with lots of farms and lands...
why did he get into software business??? its because he believed in the growth of software service industry...
now when he believed, in infrastructure, which is obviously a big thing in developing country, investors dumped him...
for example caterpillar is such a big company now, because it did the right thing when US was developing - it sold earth moving machines for all infrastructure that was being built..

I felt raju will resign the board of directors of satyam and will concentrate more on maytas...
Few days back, the same thing happenend... there was news that many directors resigned and raju also submitted his resignation...

Now today when i saw the raju's resignation letter... i was shocked, not because of what he stated in that letter about showing extra profits and the differences in cash reserves, but bcoz raju himself saying this out...
now everyone is convinced why raju wanted the maytas deal - bcoz raju said there are cash differences so they wanted to balance this, so they overvalued maytas and tried buy it...

Why he has to say this out now?? I think, there are some cash differences from actual to books, but now he has created more cash differences by generating some documents... so all the cash differences he has shown extra might be taken by RAJU... in this way he got money for the great effort put by him, for building one of India's top 4 software service industry...

Now since he has lot of black money (extra cash differences shown by him), he can win in any case against him, even CBI probe will be taken care by YSR, and raju can concentrate fully on MAYTAS and make it a leading infrastructure company in India and soon in world(consdidering the potential of infrastructure in India-most emerging powerful nation)... since in India to get big projects, we need to spend lot of black money, now that raju has it, he will soon become successfull with Maytas...

What do you think??

Thanks,
Vigyan
http://www.mokean.com
(for custom design t shirts)

Rakesh Vitta (not verified)

at 11:00 on January 7th, 2009

Hi Guys,

It was all nice observations and views from you provided on the latest developments happening at SATYAM. Let me put my views when I went through the letter written by Mr.Raju. I dont know how he managed the board members and the auditors all these years in showing the market wrong numbers of profit and revenues. He might have attempted it once to maintain the brand and stock price. But he couldnt prevent that to be covered as it kept on creeping and his attempt in injecting the money derived from his own preferential shares was also not enough to cover the damage. His final attempt possibly with many directors on his side he tried to evaluate Maytas as his family owns it and will not complain of late payments etc, overvalued it and tried to cover the damage done to Satyam. But it all went tipsy turvy and his own board of directors were not with him at this moment. He would have done it better by doing this earlier and not after his scam came open. His statement has put life of 50000 odd employees working for his organisation at stake..He should be punished by criminal law for same.

One thing we should accept is the way he has build up the company with more concentration on the domestic market. Also his social initiatives were laudable. He might come out of all these with minimal damage because of his political influence.

The best thing that can happen to Satyam now would be a merger with a management which has guts to clear all these mess and dig more profits of an already made establishment.

After seeing his letter, I thought about other major IT service companies which are showing a lot of profit margin every quarter, are they faking with these numbers or are they being real. This really threatens me that this kind of thing would have happened with other companies as well but not as this worst. Lets hope this is not the case with others. Indian Industry should not be pointed at for such wrong doings when we are still in a stage of improvement.

Rakesh Vitta
www.mokean.com
(Custom group T-shirts)

jordan

at 10:47 on January 7th, 2009

We've created a feature channel for this story, as no doubt it will have a ripple effect.

israeli.agent

at 12:09 on January 7th, 2009

Not from a Corporate perspective,

Lot of the techies from India might some or the other way have interacted with Satyam. Me too was not exception. I remember the name Satyam as something in synomyous with "Indian Microsoft" or "Indian IBM". Sad state of that company now. Yeah , it will be really horrible experience the Satyam Employees going through. Indian sense of humor are so cruel that, they equate some of the friends working in various projects of Satyam to - you dont believe - Al - Qaida members. As if the employees themselfes are responsible for this fraud..!!

Sometime back the mercurial GTB (Global Trust Bank) lost it's middle name. Now Satyam has lost its complete name itself.

PS.

"At least we are not in a denial mode and do a lot of introspection and learn our lessons unlike you Hussain!! Learn from 1971!!"

Kudos to Ravi Dixit for keeping a level head and replying like a professional that he is.

PPS.

"The political frauds of Indians are also going ..blah..blah...blah..."

Hussain............

Sigh........!

Agent

Mohan Krishna (not verified)

at 11:03 on January 7th, 2009

Hey viggy..Nice observations. i support u thw way u have observed things.!!may be from a corner of SATYAM supporter.

OKIE thats a perfect roller coaster ride of ur opinions before and after the Raju's resignation.

Before that i want to ask the credibility of any happenings at SATYAM. OK may be RAJU has hidden so much acquired interest on money which is never present in any bank, this was valued up to 360 crores. Did such things never came up in the Auditing they have done. RAJU clearly mentioned that no one except him in the board does know about the scam, but how the world class auditors at satyam missed them all these years? Did they just attended meetings to have snacks?The irony part is RAJU saying no one knews anything, except him and one of the director rama maynapati is the new CEO. He today comes infront of the people and assures the lives of the 53,000 people and other investors.Did he never got any doubt about what happeninf at the company and saw the accounts.

Later MAYTAS will definitely go ahead with many projects and that is the reason and a part of the plan at this situation of disguise for him.But, the credibility of the organisation and it's leaders is lost.RAJU will be hunted for sometime, but soon could be out of any shackles with influence he had.At the same time the measure with which things are out in public will force anyone to be away from these companies

N M Krishna

www.mokean.com

Be together!!1