SATYAM SCAM
Introduction:
Satyam computer services ltd was started in 1987 at
Hyderabad by the Raju brothers, Rama Raju and Ramalinga
Raju. The company was quite successful. Hence, they went
forward to get it listed. The company got listed in the
Bombay stock exchange in 1991. At that time the shares of
Satyam ltd were oversubscribed by 17 times. The company
proved to be a master in its field and bagged multiple
awards. Ramalinga Raju became the chairman in 2006 and
got the award for the Ernest and Youngest Entrepreneur in
2007. Soon their annual revenue touched 1 billion and by the
end of 2008, it crossed 2 billion.
The Scam:
Mr. Ramalinga Raju had begun inflating the quarterly
profits in order to meet the analyst expectations. He used his
personal computer to create a number of bank statements in
order to inflate the balance sheet with cash that simply did
not exist. The company’s global head for internal audit
created fake customer identities and fake invoices in order to
inflate the revenue. The accounts also showed $3m of "salary
payments" to people who did not exist. These in fact went to
board members. The falsified accounts were used to obtain
cheap loans in the USA which were stolen by Raju and never
entered into the accounts.
This money along with profits from the increasing share
price of the company was used by him to buy real estate as
the real estate business in the early 2000s was booming in
Hyderabad. Raju decided to invest in that sector and started
buying more and more properties and invested all his money,
he even made a new company named MAYTAS which was his
company for infra projects and properties, when he required
more and more money for investments, he started
manipulating SATYAM company accounts to get the required
money.
But in 2008 due to the financial crisis and recession, the real
estate rates started falling down and it affected the whole
world. To balance the actual figure and fake figures he
thought of acquiring MAYTAS Infrastructure and MAYTAS
Properties, this was approved by the board of directors. But
this decision was not welcomed by the investors as his family
members had major stake in MAYTAS. After this incident,
SATYAM stock price fell rapidly.
His final plan failed and he had no choices, so on 7 January
2009, Ramalinga Raju, resigned, confessing that he had
manipulated the accounts of Rs 7,000 crore in several forms.
Conclusion:
The Indian arm of PwC was fined $6 million by the SEC for
not following the code of conduct and auditing standards in
the performance of its duties related to the auditing of the
accounts of Satyam Computer Services. In 2018 SEBI barred
PwC from auditing any listed company in India for 2 years.
Many employees lost their job and the Indian stock market
fell. Two days after the confession was made Raju was
arrested and charged with criminal conspiracy, breach of
trust, and forgery. SEBI introduced new rules making it
compulsory for promoters of companies to disclose the
percentage of shares pledge by them to lenders.
Appointment of independent auditors and company
secretary by Company Law Board to conduct Audit of any
private organization.