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The Satyam Computer Services scandal was a corporate scandal that occurred in India in 2009 where Chairman Ramalinga Raju confessed that the company's accounts had been falsified. The Global corporate community was shocked and scandalized when the Chairman of Satyam, Mr. Ramalinga Raju resigned on 7 January 2009 and confessed that he had manipulated the accounts by $1.47-Billion.
The IT boom in India, was fueled by young, Middle class and Educated, budding Indian Entrepreneurs and Western firms anxious to outsource to take advantage of high-skill, low-wage worker. This trend has created a new breed of businessmen for the 21st century and generated many fortunes literally in overnight. Ramalinga Raju- founder and former chairman of Indian IT giant Satyam Computer Services- was one of these new millionaires. The son of a farmer from a middle-class family with an American MBA degree and a 1999 Ernst & Young entrepreneur, Raju started Satyam and worked his way to make the company a top 5 Indian IT firm with clients in 60 countries. Satyam is listed on the New York Stock Exchange (NYSE) and the Bombay Stock Exchange. Along the way Raju picked up CNBC's Asian Business leader - Corporate Citizen Award and 1,000 designer suits, 321 pairs of shoes, 310 belts. The Capitalization of Satyam skyrocketed to $9-billion. It consequently crashed by 78% when Raju confessed in January that he had falsified accounts for 6-years and inflated the cash account by over $1-billion. But after the crisis, the Government is now managing Satyam through a new Board. Satyam had fictitious names that diverted $4-million monthly towards the Raju's "personal wealth" by inflating the number of Employees of the company from 40,000 to 53,000; hundreds of acres of land were bought using phony accounts; certificates from HDFC Bank confirming deposits were false.
Role of Auditors
PricewaterhouseCoopers was the statutory auditor of Satyam Computer Services when the report of scandal in the account books of SatyamComputer Services was broke out. The Indian arm of PwC was fined $6 million by U.S. Securities and Exchange Commission for not following the code of conduct and auditing standards while pursuing its duties while auditing the accounts of SatyamComputer Services.
Role of Directors
The Companies Acts in India has stringent corporate Governance requirements of Board members. Yet Raju was able to steer the Fabricated accounts through his board members for 6-years! This has Bewildered the Corporate sector and Regulators. At times, the company was holding excessive cash, as per the books. This should have invited questions by Board members. It is fair to expect independent directors, like Harvard Professor Krishna Palepu, the former non-executive director of Satyam, to be moral guardians of Corporate governance. The role of independent directors in accountability, transparency and governance is also determined by common sense and tradition. However, whilst Independent Directors should steer the company on the right path, ensure compliance, protect minority Shareholders, they principally depend on information furnished to them by auditors and Lawyers. It is unfair to expect independent directors, meeting monthly or quarterly, to be undercover detectives or CoPS!
'Now the critical need is to rejuvenate Satyam, through professional managers and/or established promoters who will inject fresh capital and Enthusiasm into the business. The Securities and Exchange Board of India (SEBI) can play a pivotal role in this. Time is of the essence as customers cannot wait for solutions. We Indians by now are so used to all types of scandals and frauds by their Political leaders, Celebrities, Businessmen and public figures; it looks like nothing affects them anymore. There were a lot of passions aroused in the initial days of the scandals being exposed with questions like “How could he do it”? And “Why did he do it”? Etc. All is forgotten by the end of the day and it is back to square one for the common man.The fraud done by Ramalinga Raju is one more wake up call to our rather callous and laid back fellow Indians. The news story, which hit the Headlines a few months ago, exposed the utter dishonesty and Disregard with which Eminent businessmen deal with public money. Notwithstanding the fact that Mr. Raju came out with an admission of his guilt and wrongdoings by way of a five page letter drafted for his board members, the authorities took a full 3 days to initiate any legal action against this well connected and powerful individual .This man has revealed in his letter that he had manipulated the accounts of Satyam computers of which he was the CEO to a tune of around Rs.7000 Crores and that the money was non-existent. He further stated that he had boosted the amount of credit interest shown to the tune of around Rs. 400 Crores is another slap on the face of the easy to fool Investors. Just to think a man whom thousands trusted by putting their hard earned money into his business venture could simply write a letter saying he has manipulated his accounts to show better prospects for investment in his company, this simply shocks our senses .At long last the AP police have taken action and arrested Ramalinga Raju, Rama Raju his brother, and V. Srinivas one of the MDs’ of the company and now it is our job as usual to forget everything and get on with our boring lives. The coming few days will be however interesting to the passionate minority of Indians to see how many political and corporate heads role when more truths come out. In the meantime, it is only wishful thinking for the around 52000 Satyam Employees and the poor Investors.'
Ramalingam Raju along with 2 other accused of the scandal, had been granted bail from Supreme court on 4 November 2011 as the investigation agency CBI failed to file the chargesheet even after more than 33 months Raju being arrested.
Raju had appointed a task force to address the Maytas situation in the last few days before revealing the news of the accounting fraud. After the scandal broke, the then-board members elected Ram Mynampati to be Satyam's interim CEO. Mynampati's statement on Satyam's website said:
"We are obviously shocked by the contents of the letter. The senior leaders of Satyam stand united in their commitment to customers, associates, suppliers and all shareholders. We have gathered together at Hyderabad to strategize the way forward in light of this startling revelation."
On 10 January 2009, the Company Law Board decided to bar the current board of Satyam from functioning and appoint 10 nominal directors. "The current board has failed to do what they are supposed to do. The credibility of the IT industry should not be allowed to suffer." said Corporate Affairs Minister Prem Chand Gupta. Chartered accountants regulator ICAI issued show-cause notice to Satyam's auditor PricewaterhouseCoopers (PwC) on the accounts fudging. "We have asked PwC to reply within 21 days," ICAI President Ved Jain said.
Analysts in India have termed the Satyam scandal India's own Enron scandal. Some social commentators see it more as a part of a broader problem relating to India's caste-based, family-owned corporate environment.
Immediately following the news, Merrill Lynch (now a part of Bank of America) and State Farm Insurance terminated its engagement with the company. Also, Credit Suisse suspended its coverage of Satyam.. It was also reported that Satyam's auditing firm PricewaterhouseCoopers will be scrutinized for complicity in this scandal. SEBI, the stock market regulator, also said that, if found guilty, its license to work in India may be revoked. Satyam was the 2008 winner of the coveted Golden Peacock Award for Corporate Governance under Risk Management and Compliance Issues, which was stripped from them in the aftermath of the scandal. The New York Stock Exchange has halted trading in Satyam stock as of 7 January 2009. India's National Stock Exchange has announced that it will remove Satyam from its S&P CNX Nifty 50-share index on 12 January. The founder of Satyam was arrested two days after he admitted to falsifying the firm's accounts. Ramalinga Raju is charged with several offences, including criminal conspiracy, breach of trust, and forgery.
Satyam's shares fell to 11.50 rupees on 10 January 2009, their lowest level since March 1998, compared to a high of 544 rupees in 2008. In New York Stock Exchange Satyam shares peaked in 2008 at US$ 29.10; by March 2009 they were trading around US $1.80.
The Indian Government has stated that it may provide temporary direct or indirect liquidity support to the company. However, whether employment will continue at pre-crisis levels, particularly for new recruits, is questionable .
On 14 January 2009, Price Waterhouse, the Indian division of PricewaterhouseCoopers, announced that its reliance on potentially false information provided by the management of Satyam may have rendered its audit reports "inaccurate and unreliable". Such reply was disappointment for the general public at large as The Chartered Accountants Act, 1949 clearly states that an auditor is responsible towards the information provided to him by the management and shall be grossly negligent on affairs.
On 22 January 2009, CID told in court that the actual number of employees is only 40,000 and not 53,000 as reported earlier and that Mr. Raju had been allegedly withdrawing 20 crore (US$3 million) every month for paying these 13,000 non-existent employees.
New CEO and special advisors
On 5 February 2009, the six-member board appointed by the Government of India named A. S. Murthy as the new CEO of the firm with immediate effect. Murthy, an electrical engineer, has been with Satyam since January 1994 and was heading the Global Delivery Section before being appointed as CEO of the company. The two-day-long board meeting also appointed Homi Khusrokhan (formerly with Tata Chemicals) and Partho Datta, a Chartered Accountant as special advisors.
Acquisition by Mahindra Group
On 13 April 2009, via a formal public auction process, a 46% stake in Satyam was purchased by Mahindra & Mahindra owned company Tech Mahindra, as part of its diversification strategy. Effective July 2009, Satyam rebranded its services under the new Mahindra management as "Mahindra Satyam" with a new corporate website www.MahindraSatyam.com.
C.P Gurnani is the current CEO.
Restatement of Results
As a result of the scandal, under the directions of the new Mahindra management team, Satyam Computer Services restated its financial results for the period 2002 to 2008. These restated results were published in September 2009.
- "SEC Charges India-Based Affiliates of PWC for Role in Satyam Accounting Fraud". Securities and Exchange Commission. 2011-04-05. Retrieved 2013-04-27.
- Satyam ex-CFO Vadlamani Srinivas sent to judicial custody till Jan 23
- Satyam scandal could be 'India's Enron' - World business- msnbc.com (updated 11:42 a.m. ET Jan. 7, 2009)
- Satyam scandal rattles confidence in accounting Big Four
- ICAI to seek explanation from Satyam’s auditor PwC
- Satyam auditor says examining chairman's statement
- What happens to PWC, The Auditor For Satyam?
- Satyam: Auditors' body to pull up PwC ICAI to seek explanation from Satyam’s auditor PwC
- Grand Jury meeting of GOLDEN PEACOCK AWARDS 2008 - 8th September 2008, New Delhi Announcement of results
- Satyam stripped off Golden Peacock Global Awards - Software-Infotech-The Economic Times (8 Jan 2009, 0118 hrs IST, PTI)
- NYSE halts trading in Satyam stock - (Wednesday, 7 January 2009, 23:02) Sify.com
- Satyam Computer Services Ltd (SAY.N) Key Developments (Stocks) Reuters.com
- Indian IT scandal boss arrested - 9 January 2009 - Business - BBC NEWS
- Ready to bail out Satyam, if required: Govt
- Price Waterhouse says its Satyam audits relied on company information, could be wrong[dead link] - 14 January 2009 - Associated Press
- Template:Shedule 2 Part 2 clause7&8 - Shedule 2 Part 2 clause7&8 CA act 1949
- Satyam fudged FDs, has 40,000 employees: Public prosecutor
- Satyam Names Murty as CEO to Replace Arrested Founder - (05 February 2009, 1813 hrs IST) Satyam Names Murty as CEO to Replace Arrested Founder
- A S Murty appointed as Satyam CEO - (05 February 2009, 1816 hrs IST) A S Murty appointed as Satyam CEO Kiran
- The Great Satyam robbery
- Satyam Chairman B. Ramalinga Raju's statement to the Board
- PricewaterhouseCoopers offices searched in Satyam probe