Scam of Satyam

3613 Words Mar 16th, 2009 15 Pages
Scandal at Satyam: Truth, Lies and Corporate Governance
When terrorists attacked Mumbai last November, the media called it "India 's 9/11." That tragedy has been succeeded by another that has been dubbed "India 's Enron." In one of the the biggest frauds in India 's corporate history, B. Ramalinga Raju, founder and CEO of Satyam Computers, India 's fourth-largest IT services firm, announced on January 7 that his company had been falsifying its accounts for years, overstating revenues and inflating profits by $1 billion. Ironically, Satyam means "truth" in Sanskrit, but Raju 's admission -- accompanied by his resignation -- shows the company had been feeding investors, shareholders, clients and employees a steady diet of asatyam (or
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Rammohan Rao, the dean of the Indian School of Business in Hyderabad (ISB). Rao had chaired both December 16 board meetings. On January 8, he resigned his position as the ISB dean. In a letter to the ISB community, he explained: "Unfortunately, yesterday 's shocking revelations, of which I had absolutely no prior knowledge, mean that we are far from seeing the end of the controversy surrounding Satyam Computers. My continued concern and preoccupation with the evolving situation are impacting my role as dean of ISB at a critical time for the school. Given that my term with ISB anyway ends in a few months, I think that this is an appropriate time for me to step down."
Resigning as Satyam 's chairman and CEO, Raju said in a letter addressed to his board, the stock exchanges and the market regulator Securities & Exchange Board of India (SEBI) that Satyam 's profits were inflated over several years to "unmanageable proportions" and that it was forced to carry more assets and resources than its real operations justified. He took sole responsibility for those acts. "It was like riding a tiger, not knowing how to get off without being eaten," he said. "The aborted Maytas acquisition was the last attempt to fill the fictitious assets with real ones."
Specifically, Raju acknowledged that Satyam 's balance sheet included Rs. 7,136 crore (nearly $1.5 billion) in non-existent cash and bank balances, accrued interest and misstatements. It had also

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