The Satyam Scandal PDF

A QUICK DIVE INTO
THE SATYA M SCANDA L
By Rohit Sharma
OVERVIEW OF COMPANY
 In 1987, B. Ramalinga Raju started Satyam Computer. It was a Hyderabad
based IT company. Before starting Satyam Computer, B. Ramalinga Raju had a
cotton business.
 The IT company got listed in the Bombay stock exchange in 1991. With the
positive outlook of the firm and the industry atmosphere, the shares of the
company were oversubscribed by 17 times. In 2001, Satyam Computers made
a debut on the New York Stock Exchange (NYSE).
 The company and the promoters got numerous accolades for their
achievements. In 2006, revenues of the company crossed $1 billion. Next year,
B. Ramalinga Raju was named as the 'Ernest and Youngest Entrepreneur of the
Year'.
 In September 2008, the World Council for Corporate Governance presented

Satyam Computer with the Global Peacock Award and, Just four months later,
Satyam's accounting fraud got exposed.
INTEREST IN REAL ESTATE
 In the early 2000s, the real estate market was witnessing a boom and Raju's
focus shifted towards that. According to the estimates, the land prices were
destined to rise exponentially within a few years.
 Raju aggressively started buying lands and properties in Hyderabad and other
near places. To evade any doubts, the properties were brought on the names
of Maytas infrastructures, Maytas properties. Maytas infrastructures and
Maytas properties were the companies which were owned by Raju and his
family members.
 When he fell short of the money to buy lands, he started manipulating the
financial statements of Satyam Computers. The total revenues and profits for
the company in quarterly and annual reports were massively inflated. This
gave a false image to the shareholders and other market participants that the
company was doing exceptionally well. Rapid growth and strong
financials lured the investors to buy Satyam's shares in the market.
THE PLAN A
 The fast increase in demand led to the Satyam's share price shooting up. And
on that high share price B. Ramalinga Raju and his brother B Rama Raju began
to sell their shares and kept their other shares as collateral and took a loan.
The money came from these two routes were invested to buy more properties.
 He opened 365 companies on whose names he used to buy properties. Also

Raju used to buy land in the name of his family, friends and relatives. The
people working on his farm, whose salary was ₹4000-₹5000, Raju had made
some of them the directors of a few companies out of the 365 and bought land
in their names. He made a lot of his friends' the director of some companies
too.
 Metro Man Sreedharan said Raju had inside information about Hyderabad's
proposed metro route. That means Raju already knew the route of that metro
line. He used to buy lands near these metro routes so that he can sell the lands
at higher prices in the coming years. He planned to put some part of the
money profited from the land back into Satyam's financials. This would
decrease the gap between the actual and fake figures of revenues and profits.
 It was later disclosed that to show fake
sales in the financial statements, Raju
made 7,561 fake invoices. And to cover up
for fake profits, Raju made fake bank
statements saying that the profits are
kept in banks in the form of fixed
deposits.
 This process continues for many years. All In 1999, promoter's held 24% of
this while, the share price of the Satyam
the stake in the company. By
Computers kept on increasing. The
promoters of the organisation were also 2008, this stake dropped to 2.2%
happy to sell their shares at these higher
prices. The more Satyam grew, the gap
between Raju's the fake figure and the
actual figure increased too. And this gap
became a huge amount.
THE 2008 RECESSION
 Raju's plan lost its plot due to the 2008 financial crisis. The global financial
crisis of the US had an effect all around the globe.
 The real estate sector which was booming suddenly collapsed. There were no
buyers and the sellers were forced to decrease their land prices.
 This recession crashed Raju's dream to sell the property at higher prices and
cover up the fake figures of Satyam Computers. But he didn't stop there.
 He had another plan to cover up all the mess, without the world even getting a
hint of it.
THE PLAN B
 The plan B was that Satyam Computers will buy 100% and 51% stake of Maytas
Infrastructure and Maytas Properties. This money which will be invested by
Satyam Computers will go to Maytas' promoters. This deal would show that
the difference in amount between the actual figures and fake figures is used to
buy the two Maytas firms. But in reality, no cash transaction would take place.
 On 16th December 2008, the board directors of the company approved the
deals. But, it was pivotal for Raju to get approval from institutional investors,
who had a significant stake in the company, before making any acquisitions.
 To Raju's dismay, institutional investors were not in favor of this deal. When this
news broke out, the share price of the company started falling quickly. One of
the investors in the US even filed a lawsuit against Satyam Computers. The share
prices of the company nose-dived at both Indian and the US exchange. Under the
humongous pressure, the company was forced to cancel the acquisition of both
the Maytas companies.
THE ULTIMATE CONFESSION &
AFTERMATH
 After seeing the failure of both of his plans, on 7th January 2009, Raju
confessed that Satyam Computer has been manipulating financial statements
for years now. Raju revealed that there is a difference of ₹7136 crores
between the actual and the fake figures.
 Multiple government bodies were put to investigate everything about this

scam. Several fingers were raised on the role of independent directors and
Satyam's auditors. Investors questioned how the auditors failed to do their job
for so many years. PwC was Satyam's auditor for all these years. It was later
found that Satyam Computers were used to pay a lot more fees to PwC as
compared to what other IT companies used to pay.
 On 9 January 2009, B. Ramalinga Raju and his brother were arrested. The same
day, the Central Government disbanded Satyam board and appointed its own
10 directors and Satyam Computer's stock got removed from NIFTY and
Sensex.
So let's take a look at how Raju inflated the figures
for the financial year 2008-09s second quarter.
 On 10 April 2015, the special CBI court sentenced Raju, his brother B Rama
Raju, the then CFO, Srinivas Vadlamani, two PWC partners and five other
people, to 7 years of jail and Raju and his brother were fined ₹5.5Crores.
 Just a few days after confessing, Satyam's share price fell from ₹170 to ₹6.50.
ACTION TAKEN BY SEBI
 SEBI punished PWC for failing to spot a fraud of over $1 billion at SATYAM.
 SEBI also ordered PWC to hand over wrongful gains of around $2 million plus
interest @12% per year for the past 8 years.
 Recently, SEBI banned PWC from auditing Listed companies in india for two
years.
 SEBI charged Raju and his family with Insider Trading and ordered them to
return, ₹1850 crores of profit they made through insider trading, with an
interest of 12%. They also banned them from dealing in the securities market
for 14 years.
ASPECTS RELATED TO MONEY
LAUNDERING
 According to the CBI report, Raju was into money laundering. And he
first used to send money to Europe and would then reroute it to India.
And with this money, Raju would buy lots of anonymous buildings.
 The Enforcement Directorate pressed charges on Raju and 47 people

along with him and on his 166 companies for money laundering and
seized Raju and his family's property.
REVIVAL
 To save the company from

dying, the government sold
the company's majority of the
stakes to Tech Mahindra. The
entity was later called as
Mahindra Satyam.
 Later, in June 2013, this

entity got merged with Tech
Mahindra. By the time when the Tech Mahindra
acquired Satyam, the Stock moved
from Rs.6 to Rs. 120 in less than one
year
CHANGES IN THE LEGAL LANDSCAPE
POST SATYAM SCAM
 SEBI’s committee on disclosure and accounting standards issued a

discussion paper in 2009.
 The Ministry of Corporate Affairs(MCA) in 2009, issued a set of

voluntary guidelines for corporate governance.
 The Companies Act 1956 came to be repealed with the new Companies
Act 2013 .
SOURCES
 https://marketfeed.com/read/en/the-infamously-famous-satyam-
scam
 https://www.youtube.com/watch?v=SnavIExxtK8
 https://www.moneycontrol.com/news/opinion/what-changed-in-the-
legal-landscape-post-satyam-scam-2480623.html

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A QUICK DIVE INTO

THE SATYA M SCANDA L

 In September 2008, the World Council for Corporate Governance presented

 He opened 365 companies on whose names he used to buy properties. Also

 Multiple government bodies were put to investigate everything about this

 The Enforcement Directorate pressed charges on Raju and 47 people

 To save the company from

 Later, in June 2013, this

 SEBI’s committee on disclosure and accounting standards issued a

 The Ministry of Corporate Affairs(MCA) in 2009, issued a set of

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