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This article is more than 3 month old.

Backstory: Satyam storm and the fall of Ramalinga Raju

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With that startling confession in a letter dated January 7, 2009, Raju blew the lid on the country’s largest corporate fraud at the time. Satyam was then the country’s fourth largest IT firm, an employer of choice and a preferred outsourcer for many US corporations.

Backstory: Satyam storm and the fall of Ramalinga Raju
“Dear Board Members, It is with deep regret, at tremendous burden that I am carrying on my conscience, that I would like to bring the following facts to your notice…” The writer was Ramalinga Raju, the founder of Satyam Computers and in the rest of the letter he went on to admit to an accounting fraud of over Rs 7,000 crore through overstated profits and falsified assets.
With that startling confession in a letter dated January 7, 2009, Raju blew the lid on the country’s largest corporate fraud at the time. Satyam was then the country’s fourth-largest IT firm, an employer of choice and a preferred outsourcer for many US corporations. On the day of the confessional, it had 53,000 people on its rolls and worked for several Fortune 500 companies.
As news of the scam broke, with no circuit filters in place, the Satyam stock started dropping precipitously. From Rs 188 at the start of the day it fell to Rs 40 at the close dragging the Sensex down by 7.3 percent. The next day was even worse. As details emerged of what had happened it dropped to Rs 6. Satyam's New York-listed American Depositary Receipts plunged 75 percent to $2.38 in pre-market action though didn’t open for trading as the New York Stock Exchange stopped its trading.
The company’s troubles had started on December 16, when it announced plans to acquire Maytas Infra and Maytas Properties, two infrastructure companies owned by the founders for around Rs 7,700 crore. The announcement spooked its shares which were driven down 30 percent forcing the takeover plan to be cancelled within 24 hours. Its credibility further suffered when a week later the World Bank barred the company from bidding for contracts for eight years, for giving "improper" benefits to its employees. With four of its board members quitting and the news that the Raju's family stake in the company was down to just 3 percent, there was even speculation about a possible acquisition.
The final blow came on January 6, when Satyam's investment banker DSP Merrill Lynch told Sebi that it had found serious flaws in the course of its due diligence in the company. With that, Raju had no place left to hide and the letter to the board followed.
Raju was arrested and in 2015, six years after a case was filed, he was sentenced to seven years in jail for criminal cheating and conspiracy. His overarching ambition, which brought about his downfall, was also what drove the company’s steep rise. After an MBA degree from Ohio University in the US, he started a number of businesses ranging from hotels to cotton spinning, none of which went anywhere, before turning his attention to software services in 1987. He struck paydirt within three years snagging heavy equipment manufacturer Deere & Co. as his first Fortune 500 client. Satyam was on its way and in 1992 it went public, a year ahead of the listing of its more celebrated rival Infosys.
The company grew rapidly under its well-connected founder who had also drawn close to the political establishment in Andhra Pradesh under its technology-friendly chief minister Chandrababu Naidu. But unknown to its high-powered board and to its auditors PwC, Raju was cooking the books. In its subsequent investigations, CBI found 112 sales deeds for different land purchases along with thousands of fake employee records.
Once the fraud was exposed, the government acted swiftly and decisively, appointing a 10 member board to help clean up the accounts and prepare for a quick sale. In April 2009, Satyam was acquired by Tech Mahindra in an auction and over the next two years, the two were merged to create India’s fifth-largest IT services firm.
—Sundeep Khanna is a former editor and the co-author of the recently released Azim Premji: The Man Beyond the Billions. Views are personal
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