2. Ramalinga Raju was born on 16th
September 1954.
Belongs to a traditional
agricultural family of Kshatriya
community of Andhra Pradesh.
He founded Satyam Computers
in 1987.
He was the chairman until 9,
January 2009,When he resigned
from Satyam board after admitting
to corporate fraud.
FOUNDER OF SATYAM
COMPUTERS
RAMALINGA RAJU
3. Satyam Company Services Ltd. was incorporated on
June 24, 1987
Promoters holding of the shares in 1992 was 18.78%
Main business of the company was IT related fields and
it came into prominence after Y2K problem
In 1991, it was in a rented house having 10 Engineers.
Company was listed in Bombay Stock Exchange in 1992
company bags its first fortune 500 client John Deere &
Co
Revenue crossed $2 Billion -2008
Listing in NASDAQ, USA- 1999
Listed on New York Stock Exchange- 2001
4. Enron is known as the one of the largest fraud scandals in the
United States history.
Enron corporation was an American energy, commodities, and
services company based in Houston , Texas.
Enron formed in 1985 by Kenneth Lay.
During 1985, it bought the smaller and less diversified Houston
natural gas company.
The company initially named itself “HNG/inter North Inc.,
however was later renamed to “Enron”.
5. As a result of the investigations, the company was forced to
file for bankruptcy in December 2001. In May 2006, Enron’s
former chief executive, Jeffrey Skilling was sentenced to 24
years in jail while the ex-chairman Kenneth Lay died of
heart-attack in July 2006.
• Employed approximately 20,000 staff.
• One of the world’s major electricity ,natural gas ,pulp and
paper company.
• Revenue as nearly $101 billions.
• Named Enron “America’s Most Innovative Company” for
the six consecutive years by Fortune.
8. Timeline
Enron was formed on July1985 by Kenneth Lay after
merging Houston Natural Gas and Omaha based InterNorth.
On 2000, Enron reaches No. 7 on the Fortune 500 list.
On August 14, 2001, Jeffrey Skilling resigns as CEO, and
Kenneth Lay becomes CEO again (He had been CEO from
1985-2000).
On August 15, 2001 - Sherron Watkins sends a memo to
Kenneth Lay about accounting issues.
On October 31, 2001 - The SEC opens a formal investigation
into Enron's transactions.
9. Contd.
November 9, 2001 - Enron and Dynegy announce the $7.8
billion merger agreement. It would form Dynegy Corp, in
which Dynegy would own 64% and Enron 36%.
November 28, 2001 - Dynegy announces it has terminated
merger talks with Enron.
January 9, 2002 - U.S. Department of Justice opens a criminal
investigation into Enron's collapse.
10. Contd.
January 11, 2002 - The SEC widens its investigation to
include Enron's chief auditor, Arthur Andersen, due to reports
of document shredding.
May 25, 2006 - The jury in the Enron case finds former CEO
Jeffrey Skilling and founder Kenneth Lay guilty of conspiracy
and fraud.
July 5, 2006 - Ken Lay dies in Aspen, Colorado from a heart
attack brought on by severe coronary artery disease.
September 26, 2006 - Andrew Fastow is sentenced to 6years
in prison, four years less than his plea agreement stipulated in
January 2004.
11. Contd.
October 17, 2006 - Judge Lake erases Lay's fraud and
conspiracy convictions. This is a long-standing legal practice of
the U.S. federal courts if the defendant dies before he/she has a
chance for an appeal to be heard.
October 23, 2006 - Jeffrey Skilling is sentenced to 24 years
and four months in prison.
16. AUDITING FIRM’S RESPONSIBILITY
Regarding auditing good governance
requires high quality standards for
preparation and disclosure, and
independence for the external auditor.
Enron’s external auditor was Arthur
Anderson, which also provided firm
with extensive internal auditing and
consulting services.
17.
18. Reasons for the Failure of Enron
o Economic Risk
As Enron expanded beyond the natural gas pipeline
business, it also reached beyond the US borders.
Enron International, a wholly-owned subsidiary of
Enron, was created to construct and manage energy
assets outside the United States, particularly in
markets where energy was being deregulated. This
exposed the company to economic risk.
19. Contd.
Political Risk
International diversification, particularly in developing
economies such as India and China, exposed Enron to
political risks. For example, the Dabhol power project in
India represented the single largest foreign direct
investment project until that time in India, and it attracted
considerable political opposition and controversy. Given
its limited business experience in developing economies,
Enron did not have expertise in managing the political risk
of expropriation of its assets after the construction of the
plant.
24. THE DISASTROUS REVELATION
The Black day: 7th January, 2009
Accounting fraud of over 7800 crore rupees
From past 7 years accounting books were cooked:
-Profits were inflated
-Understated liability and overstated debts
-Accrued interests
-The gaps in the balance sheets are due to the
Inflated profits
25.
26. CONFESSION LETTER
Raju wrote in the confession letter
“Every attempt to fill the gap failed".
It was like riding a tiger, not knowing how to get off without
being eaten”.
27. CONFESSION LETTER
Maytas Acquisition
Last attempt to fill the gap.
Top officials were unaware
Only MD & CFO were others.
No personal profits.
Did not sell any shares from 8 years.
29. • 11464 Crore
Companies
worth
• BSE sensex fell by 749.05 i.e. 7.25% .
• NSE fell by 192.40 points i.e. 6.18%.
Stock Market
• Biggest single day fall for a stock in
stock market
• 175 Rs/-(Jan 6th)
Satyam
shares
1607 Crore
77%
All time low of Rs 11.50 on 9th jan and closed at 23.75 Rs/-.
Compared to highest of 524.90 Rs/- on may 29,2008
31. CFO revealed during investigation:
Started 6-7 years ago
10 crore was inflated to 200 crore in Balance Sheet
This marginal gap went on expanding over years.
7800 Crore
Fraud
years
32. THE ILLUSIONISTS
• Ramalinga Raju: Satyam Former Chairman
• B Rama Raju: Brother of Ramalinga Raju
Former Managing director .
• V Srinivas: Ex-chief financial officer
• S Gopalakrishnan: PriceWaterhouse Auditor
• Talluri Srinivas: PriceWaterhouse Auditor
33. PROBABLE REASONS
• Growing competition
• Threat of being overtaken
PRESSURE TO MEET
EXPECTATION
• On his ability
OVERCONFIDENDCE
•Siphoning off funds
•Salary of non-existent 13000 employees
PERSONAL BENIFITS
"Since about seven years we wanted to show more income in the accounts to avoid others
from involving in the company affairs and any possible hostile acquisition”.
35. The software firm’s unreal and fictitious fixed deposits
were managed with an understanding between
the management and audit section .
•Ignorence of Firm’s
Auditors.
•Control over CFO.
•Offered to resign
twice.
•Bank deposits were
directly handled by
the chairman and
Managing director.
37. The MAYTAS Acquisition
• Maytas infra and Maytas properties : firms owned
by the sons of Raju.
• Planned to buy the Maytas to fill the gap in the
balance sheet.
• Last attempt Raju made to fill the gap in the
balance sheet.
• Major shareholder rebellion
• Acquisition was termed “Poor corporate
governance”.
39. .”
Raju was probably convinced that the gap in the balance
sheet reached unmanageable proportions and could not be
filled anyhow in future.
A person who used a pseudonym, claimed himself to be a
former senior executive in Satyam involved with its contract
with the World Bank, acted as the whistleblower whose email
to a Satyam board member triggered a chain of events that
culminated in erstwhile chairman Mr Raju’s decision to confess
to the financial crime.
41. Difference between Satyam And Enron
S .no ENRON SATYAM
1. Enron Debacle was a consequence
of the failure of its business model
Satyam was a consequence of the
success of its business model.
2. Enron is a classic case of agency
cost.
Satyam is a case of tunneling.
3. Enron started successfully in
hardware and ultimately failed
because of the top management
focus on software where it took
unreasonable risk.
Satyam started successfully in
software and ultimately failed
because of the promoter’s unending
thirst for real state.
4. In case of agency effect ,if
managers have their own way and
investors are careless, the end
result will be bankruptcy. That’s
why managers will try to hide the
losses.
In case of tunneling, profit is
siphoned, and as and when this
fraud comes into public knowledge,
this self-dealing could be stopped
and company could be again brought
back on track.
42. Contd…
5. Enron invested heavily in
Dabhol and lost badly due to
the change in the government
in Maharashtra which became
the starting point of fall of
Enron.
Satyam got listed in
NASDAQ, investors
started reacting
negatively to the buyout
of Maytas, which led to
battering of the Satyam
shares at the down.
43. Recommendations
We need to take some precautious activities, so that
we can eliminate these types of situations. Some of
the activities are:
Bann of granting of government permissions on
illegal practices which provides the companies a
window through which they can generate black
money.
We should focus upon CSR (Corporate Social
Responsibility) due to involvement of society to
the business and these types of activities affects it.
44. Contd.
Auditors should perform their work ethically.
Manipulations, over profit, hiding loss etc are the
examples of unethical practices.
Whole part of profit should avoid for investment. So
that if we suffer from any losses, we have the money
with ourselves for recovery.
Risk management should be effective. Taking risk is
good but unnecessary taking risks should be avoided.
So proper risk measure tool should be used.
45. Enron should have public in stockholder reports.
Many would have saved all their money.
Enron scandal should be a lesson for future
businesses involving ethical dilemmas.
The scandal made the authorities realize the
importance of ethics and the importance
INTERNAL CONTROL in business enterprises. It
also helped understand the real meaning of
Shareholder’s wealth maximization.
