Satyam scam...a shame in indian corporate it world

STAKEHOLDERS
o Chairman
o Promoters
o Accounting Scam
o Auditing Practices
o Auditors
o Ethics
o Corporate Governance
o Whistle-blower Policy
o BOD
o Independent Directors
o Audit Committee
o Regulators
o Multiple Agencies

1) Bird’s Eye View of Financial Frauds in India
2) Brief Profile of Byrraju Ramalinga Raju
3) Background
4) When PROBLEMS begin……...timelines
5) ‘CONFESSION’ – THE ‘LETTER’ BOMB
6) Tech Mahindra acquired Satyam, renamed it as Mahindra Satyam and replaced its executive Board and Auditors
7) SWIFT GOVT. ACTION SAVED SATYAM ULTIMATELY…
8) Why Govt. Mediated…?
9) Investigations
10) SEBI Outcomes….
11) Abstracts from Research Paper published by Mr. Madan Lal Bhasin – Modes-operandi
12) Some Lessons Learned…
13) Satyam Scandal … an Accounting Scandal
INDEX

Bird’s Eye View of Financial Frauds in India
Sl. No.
Name of
Scams
Nature of
Industry
Year Fraud Perpetrators How Fraud Committed?
Fraud
Quantum
(in Crore)
1 Harshad Mehta
Capital Market
and Asset
Management
1992 MD
Harshad Mehta led to rise in Stock Market
by Trading in Shares at Premium.
4,000
2 C. R. Bhansali Capital Market 1996 MD
Established Finance company and collected money from
public and transfer money to company that never
existed.
1,200
3 Ketan Parekh Capital Market 2001 MD
Took loan of Rs.250 crore from the bank whereas
maximum limit was 1.5 crore.
1,500
4 UTI Mutual Funds 2001
Chairman, Executive
Director, Stock Broker
UTI issued 40,000 shares which were purchased for about
Rs.3.33 crores.
32
5 Dinesh Dalmia
Information
Technology
2001 MD
Rs.1.30 crore shares are unlisted in Stock Exchange.
Dalmia resorted illegal ways to make money through
partly paid up shares.
595
6 IPO Demat Scam Capital Market 2005 Proprietor
Opened several fake demat accounts and subsequently
raised finances on the shares allotted through Bharat
Overseas Bank branches.
41
7 Satyam
Information
Technology
2009
Auditor, Director,
Manager
Accounting entries has been hugely inflated
involving about Rs.100 crore.
8,000
8
Sahara India
Pariwar Investor
Fraud, Scam
NBFC 2010 Chairman
Sahara India Real Estate Corp. Ltd (SIRECL) and Sahara
Housing Investment Corp Ltd (SHICL), which issued
Optional Fully Convertible Debentures (OFCD), illegally
collected investor money.
25,000

Sl. No.
Name of
Scams
Nature of Industry Year Fraud Perpetrators How Fraud Committed?
Fraud
Quantum
(in Crore)
9
Kingfisher Loan
Repayment
Default
Aviation 2012 Chairman
Kingfisher Airlines had 2nd largest share in India's
domestic air travel market. However, the airline ran into
continuous losses since its inception, ran high debts and
finally closed its operations in 2012. Its chairman Vijay
Mallya subsequently fled to London to hide from Creditor
9,000
10
Saradha Group
Scam
Ponzi Scheme 2013 Chairman & MD
The Ponzi scheme run by Saradha Group collected money
from investors by issuing redeemable bonds and secured
debentures and promising incredulously high profits from
reasonable investments.
30,000
11 NSEL Scam Commodity Market 2013 CEO
Commodities that were traded were not found in the
warehouses.
5,500
12
PACL Ponzi
Scheme Scam
Ponzi Scheme 2014
MD & Promoter
Director
The investors 'sold' agricultural land and issued allotment
letters containing details of the same within a period of
90- 270 days. Co. then tell its investors that the same land
would be further sold and the profit would be returned
back to customer after subtracting a commission. The fact
is that neither PGF nor PACL-owned lands.
45,000
13 PNB Fraud
LOUs issued
fradulantely
without following
prescribed CBS
(SWIFT) procedure
2018
Nirav Modi. his wife
Ami Modi, brother
Nishal Modi and uncle
Mehul Choksi officials
and employees of PNB
The fraud was allegedly organized by jeweller & designer
Nirav Modi. Nirav, his wife Ami Modi, brother Nishal Modi
and uncle Mehul Choksi, all partners of the firms, M/s
Diamond R US, Solar Exports and Stellar Diamonds along
with PNB officials and employees, and directors of Nirav
Modi and Mehul Choksi's firms.
14500
http://www.osmania.ac.in/UGC%20MRP%20final%20Reports2018/FFP%20AND%20IP-PROJECT%20FINAL%20REPORT.PDF

Born on 16th September 1954 in a family of farmers
Did his B.Com from Andhra Loyola College at Vijayawada and subsequently done his MBA from Ohio University, USA
Has two brothers and a sister
Married to Nandini. Have two sons Teja Raju and Rama Raju…Who runs Hydrabad based Maytas Properties & Maytas
Infra and a daughter.
After returning to India in 1977, Ramalinga Raju moved away from the traditional agriculture business and set up a
spinning and weaving mill named Sri Satyam.
Thereafter he shifted to real estate business and started a construction co. in 1987 named
Satyam Constructions.
He founded Satyam Computers Services along with
one of his brother-in-law, DVS Raju.
Brief Profile of Byrraju Ramalinga Raju

24th June 1987 - Satyam Computer Services Ltd (SCSL - Popularly known as Satyam) was incorporated by the two brothers,
B.Rama Raju and B.Ramalinga Raju, as a Pvt. Ltd. company with just 20 employees for providing software development
and consultancy services to large corporations (It became a public company on 26th August 1991).
During the year 1996 - Company promoted four subsidiaries including Satyam Renaissance Consulting Ltd, Satyam
Enterprise Solutions Pvt. Ltd., and Satyam Infoway Pvt. Ltd.
ACHIVEMENTS
1991 - Satyam gets listed on the Bombay Stock Exchange, IPO oversubscribed 17 times
Satyam Computer Services Ltd in 1997 was selected by the Switzerland-based World Economic Forum and World Link
Magazine as one of India's most remarkable and rapidly growing entrepreneurial companies.
Satyam Infoway (Sify), a wholly owned subsidiary of SCSL, was the 1st Indian Internet Company listed on NASDAQ, DOW
and EURONEXT.
Mr. B. Ramalinga Raju, Chairman of Satyam, was awarded the IT Man of the Year 2000 Award by Dataquest.
In 2001, Satyam became world’s first ISO 9001:2000 company to be certified 2 by BVQI.
Background

ACHIVEMENTS……….…Contd
In 2003, Satyam started providing IT services to World Bank & signed up a long term contract with it.
IN 2005, Satyam was ranked 3rd in Corporate Governance Survey by Global Institutional Investors
2006 - Revenues cross '$1 billion. Raju becomes NASSCOM Chairman
2007: Raju named Ernst & Young Entrepreneur of the year
On 23rd September 2008, Satyam awarded with Golden Peacock Award for Corporate Governance and Compliance.
India’s 4th biggest software company.
Business in 66 countries and employed 53,000 staff strength.
Served over 654 global companies, 185 of which are Fortune 500 Companies.
Was a poster-boy of IT industry and recipient of Golden Peacock award for exemplary standards of corporate
governance
Profile

16th December 2008:–
Its chairman Mr Ramalinga Raju, in a surprise move announced a $1.6 billion
bid for two Maytas companies i.e. Maytas Infrastructure Ltd. and Maytas
Properties Ltd saying he wanted to deploy the cash available for the benefit of
investors. These 2 companies were promoted and controlled by Raju’s family.
investors gave thumbs down and the market forced him to back out of Maytas deal within 12 hours (aborted the deal) .
Share prices plunges by 55% on concerns about Satyam’s corporate governance.
Mr Raju says Satyam is considering a share buyback in a move to regain investors’ confidence after its stock plunged.
Central Govt. refers Satyam deal to Registrar of Companies (RoC)
When PROBLEMS begin……...timelines

British mobile solution provider Upaid filed a law suit in a US over Maytas deal.
23rd December 2008:–
In a surprise move, World Bank (WB) announced that Satyam has been barred from business with WB for 8 years for
providing Bank staff with:
• Improper benefits to staff
• Data theft and
• Bribing the staff.
Share prices fell another 14% to the lowest in over 4 years.
25rd December 2008:–
Satyam asks World Bank to apologize.

The lone independent director since 1991, Dr. (Mrs.) Mangalam Srinivasan, announced resignation. She has held
senior research and faculty positions in leading US universities (University of California, American University in
Washington DC, Harvard University, Northeaster University and Tufts University in Boston)
Three more independent directors resigned.
• Vinod K Dham (famously known as father of the Pentium and an ex-Intel employee),
• M Rammohan Rao (Dean of the renowned Indian School of Business) and
• Krishna Palepu (professor at Harvard Business School).
IL&FS sells 44.1 lakh pledged shares of Satyam promoters in 1 day. Promoters equity reduced from 8.6% to aprox. 7%
Post cancellation of deal, Maytas looks for raising $500 million through sale of equities and Properties
One of Satyam's largest investors says it could sell its stake. More suitors join in the fray to acquire Satyam.

02nd January 2009:–
Satyam says its founder's stake fell by a third to 5.13%.
IL&FS sells further 44.27 Lakh pledged shares taking the tally to 1.5 crore pledged shares
Satyam-Upaid case hearing over the Maytas deal in Texas court on January 8.
06th January 2009:– The Night Before 7th Janunary
Satyam's i-bank DSPML meets SEBI, informs about accounting irregularities. DSP submits report to SEBI and Satyam
management late night.
Satyam employees receive letter from M Ramalinga Raju admitting fraud
Total pledged shares sold by IL&FS reaches 2.5 Cr. in last 13 days. Promoters stake down to 3.6%. Still a further 1.7%
were pledged

7th January 2009:- The Confession
At 09.45 a.m., B. Ramalinga Raju announced confession of over Rs. 7800 crore accounting fraud and he resigned
as chairman of Satyam. He revealed in his email addressed to BOD with copy to SEBI and SEs, that his attempt to buy
Maytas companies was his last attempt to “fill fictitious assets with real ones”.
He admitted in his letter, “It was like riding a tiger without knowing how to get off without being eaten”.
ADR’s crash 90% Satyam BSE scrip falls 78%
NSE removes Satyam from its benchmark index Nifty.
Auditing firm PWC under scanner
Govt. instructs RoC to review report
Satyam stripped of Golden Peacock award
Ram Mynampati takes over as interim CEO according to Raju’s letter

To The Board of Directors,
Satyam Computer Services Ltd.
From: B. Ramalinga Raju
Chairman, Satyam Computer Services Ltd. 7 January, 2009
Dear Board Members,
It is with deep regret, and tremendous burden that I am carrying on my conscience, that I would like to bring the following facts
to your notice:
1. The Balance Sheet carries as of September 30, 2008:
a) Inflated (non-existent) cash and bank balances of Rs. 5040 crore (as against Rs. 5361 crore reflected in the books);
b) An accrued interest of Rs. 376 crore which is non-existent;
c) An understated liability of Rs. 1230 crore on account of funds arranged by me; and
d) An overstated debtors position of Rs. 490 crore (as against Rs. 2651 reflected in the books).
2. For the September quarter (Q2), we reported a revenue of Rs. 2700 crore and an operating margin of Rs. 649 crore (24%
of revenues) as against the actual revenues of Rs. 2112 crore and an actual operating margin of Rs. 61 crore (3% of
revenues). This has resulted in artificial cash and bank balances going up by Rs. 588 crore in Q2 alone.
‘CONFESSION’ – THE ‘LETTER’ BOMB

The gap in the Balance Sheet has arisen purely on account of inflated profits over a period of last several years (limited only to
Satyam standalone, books of subsidiaries reflecting true performance). What started as a marginal gap between actual
operating profit and the one reflected in the books of accounts continued to grow over the years. It has attained unmanageable
proportions as the size of company operations grew significantly (annualized revenue run rate of Rs. 11,276 crore in the
September quarter, 2008 and official reserves of Rs. 8392 crore). The differential in the real profits and the one reflected in the
books was further accentuated by the fact that the company had to carry additional resources and assets to justify higher level
of operations - thereby significantly increasing the costs.
Every attempt made to eliminate the gap failed. As the promoters held a small percentage of equity, the concern was that poor
performance would result in a take-over, thereby exposing the gap. It was like riding a tiger, not knowing how to
get off without being eaten.
The aborted Maytas acquisition deal was the last attempt to fill the fictitious assets with real ones.
Maytas’ investors were convinced that this is a good divestment opportunity and a strategic fit. Once Satyam’s problem was
solved, it was hoped that Maytas’ payments can be delayed. But that was not to be. What followed in the last several days is
common knowledge.
I would like the Board to know:
1. That neither myself, nor the Managing Director (including our spouses) sold any shares in the last eight years—excepting
for a small proportion declared and sold for philanthropic purposes.
2. That in the last two years a net amount of Rs. 1230 crore was arranged to Satyam (not reflected in the books of Satyam) to
keep the operations going by resorting to pledging all the promoter shares and raising funds from known sources by giving all

kinds of assurances (Statement enclosed, only to the members of the board). Significant dividend payments, acquisitions,
capital expenditure to provide for growth did not help matters. Every attempt was made to keep the wheel moving and to
ensure prompt payment of salaries to the associates. The last straw was the selling of most of the pledged share by the
lenders on account of margin triggers.
3. That neither me, nor the Managing Director took even one rupee/dollar from the company and have not benefitted in
financial terms on account of the inflated results.
4. None of the board members, past or present, had any knowledge of the situation in which the company is placed. Even
business leaders and senior executives in the company, such as, Ram Mynampati, Subu D, T. R. Anand, Keshab Panda,
Virender Agarwal, A. S. Murthy, Hari T, SV Krishnan, Vijay Prasad, Manish Mehta, Murali V, Sriram Papani, Kiran Kavale, Joe
Lagioia, Ravindra Penumetsa, Jayaraman and Prabhakar Gupta are unaware of the real situation as against the books of
accounts. None of my or Managing Director’s immediate or extended family members has any idea about these issues.
Having put these facts before you, I leave it to the wisdom of the board to take the matters forward. However, I am also taking
the liberty to recommend the following steps:
1. A Task Force has been formed in the last few days to address the situation arising out of the failed Maytas acquisition
attempt. This consists of some of the most accomplished leaders of Satyam: Subu D, T. R. Anand, Keshab Panda and
Virender Agarwal, representing business functions, and A. S. Murthy, Hari T and Murali V representing support functions. I
suggest that Ram Mynampati be made the Chairman of this Task Force to immediately address some of the operational
matters on hand. Ram can also act as an interim CEO reporting to the board.
2. Merrill Lynch can be entrusted with the task of quickly exploring some Merger opportunities.

3. You may have a ‘restatement of accounts’ prepared by the auditors in light of the facts that I have placed before you.
I have promoted and have been associated with Satyam for well over twenty years now. I have seen it grow from few people
to 53,000 people, with 185 Fortune 500 companies as customers and operations in 66 countries. Satyam has established an
excellent leadership and competency base at all levels. I sincerely apologize to all Satyamites and stakeholders, who have
made Satyam a special organization, for the current situation. I am confident they will stand by the company in this hour of
crisis.
In light of the above, I fervently appeal to the board to hold together to take some important steps. Mr. T.R. Prasad is well
placed to mobilize support from the government at this crucial time. With the hope that members of the Task Force and the
financial advisor, Merrill Lynch (now Bank of America) will stand by the company at this crucial hour, I am marking copies of
this statement to them as well.
Under the circumstances, I am tendering my resignation as the chairman of Satyam and shall continue in this position only till
such time the current board is expanded. My continuance is just to ensure enhancement of the board over the next several
days or as early as possible.
I am now prepared to subject myself to the laws of the land and face consequences thereof.
(B. Ramalinga Raju)
Copies marked to:
1. Chairman SEBI
2. Stock Exchanges

8th January 2009:-
PwC in major trouble. Stocks of PwC clients take a major beating at the BSE and NSE.
PwC shot back at Satyam, saying in a media statement that the auditing was based on the
audit evidence provided by Satyam and in was accordance with applicable standards.
CFO Valdamani Srinivas resigns
BSE to replace Satyam Computer with Sun Pharmaceutical in its benchmark index Sensex with effect from January 12.
Satyam's bank Citibank freezes its 30 accounts. Interim CEO Ram Mynampati says company in severe cash crunch and
may not be able to pay salaries.
9th January 2009:-
Raju and his younger brother B Rama Raju were arrested by the Andhra Pradesh police on charges of criminal breach
of trust, cheating, criminal conspiracy, misappropriation of funds and forgery under the IPC.
Central Govt disbands Satyam board, to appoint its own 10 directors.

10th January 2009:-
The Central Govt. reconstituted Satyam's board that included three-members,
• Deepak Parekh HDFC Chairman ,
• Kiran Karnik Ex Nasscom chairman and IT expert and
• C Achuthan former SEBI member.
Former CFO Valdamani Srinivas remanded to judicial custody
Market Capitalization of Satyam falls to Rs. 1,607 Cr from Rs.15,262 Cr. on Dec 16 in 19 trading sessions.
13th January 2009:-
Government orders SFIO to probe the scandal.
14th January 2009:-
The newly appointed 3 member board appoints auditing firm KPMG and Delloitte
to assist it in cleaning the mess in the scam tainted company’s accounts

15th January 2009:-
23 year old employee of Satyam commits suicide in Chennai fearing job loss
The Central Govt. expanded the 3 member Satyam Board to six to include 3 more directors to the reconstituted Board,
• Tarun Das, Chief mentor of Confederation of Indian Industry
• TN Manoharan, former president of the Institute for Chartered Accountants (ICAI) and
• S Balakrishnan, LIC
A week after Satyam founder B.Ramalinga Raju’s scandalous confession, Satyam’s auditors PwC finally admitted that its
audit report was wrong as it was based on wrong financial statements provided by the Satyam’s management.
22nd January, 2009:-
Satyam’s CFO Srinivas Vadlamani confessed to having inflated number of employees by 10,000. He told CID officials
interrogating him that this helped in drawing around Rs 20 Crs. Per month from related but fictitious salary a/cs .
Andhra Pradesh State CB-CID raided the house of Suryanarayana Raju, the youngest sibling of Ramalinga Raju holding
4.3% in Maytas Infra, and recovered 112 sale deeds of different land purchases and development agreements.

Senior partners S Gopalakrishnan and Srinivas Talluri of the auditing firm PricewaterhouseCoopers (PwC) were
arrested for their alleged role in the Satyam scandal. The State’s CID police booked them, on charges of fraud (Sec. 420
of the IPC) and criminal conspiracy (120B).
02nd February 2009:- Mahindra & Mahindra (M&M) expresses interest in acquiring Satyam
05nd February 2009:- Govt. appointed board names A.S. Murthy as the new Chief Executive.
11th February 2009:- Satyam case handed over to CBI.
18th February 2009:- Govt. asks CLB to supersede the boards of Maytas Infra and Maytas Properties.
06th March 2009:- SEBI gives approval to sell 51% in Satyam.
04th April 2009:- CBI files its first charge sheet.
13th April 2009:- Tech Mahindra, through its subsidiary Venturebay Consultants, acquires Satyam.

22nd November 2009:- CBI files its second charge sheet.
07th January 2010:- CBI files the third charge sheet.
Feb 2011-Apr 2012: Mahindra Satyam pays MUSD 125 & MUSD 68 to settle US law suits and Aberdeen UK claim,
respectively.
25th Oct 2011: Trial court frames charges in the case.
02nd Nov 2011: Trial begins.
04th Nov 2011: Ramalinga Raju, along with two other accused, gets bail from the SC as CBI fails to file the charge
sheet even after more than 33 months of Raju being arrested.
25th June 2013: Mahindra Satyam merged with Tech Mahindra, creating a new entity with revenues of BUSD 2.7.
09th January 2014: Ramalinga Raju’s wife Nandi Raju and sons Teja Raju and Rama Raju were among 21 relatives of
the ex-Satyam boss who were convicted by the Economic Offences Court for default in payment of Income Tax.

24th June 2014: Trial in the case against Satyam ends
15th July 2014: SEBI bars Raju, 4 others from accessing securities market for 14 years. Orders them to pay Rs 1849
Crores with 12% interest in 45 days
08th December 2014: Ramalinga Raju and 3 others convicted by a Economic Offences Court in connection with
complaints filed by SFIO to 6 months imprisonment.
09th April 2015: Ramalinga Raju and 9 others sentenced to 7 years rigorous imprisonment in connection with the
case probed by CBI.

TECH MAHINDRA ACQUIRED SATYAM, RENAMED IT AS MAHINDRA SATYAM AND
REPLACED ITS EXECUTIVE BOARD AND AUDITORS
Merely 4 months after its founder B. Ramalinga Raju admitted to fudging the books, Satyam’s
government appointee six-member board managed to salvage the company despite all odds.
The board, which kicked off the global competitive bidding process in March 2009, selected Venturbay
Consultants, a subsidiary of Tech Mahindra, as it emerged as the highest bidder at rupees 58 per share.
The deal got the approval of Company Law Board.
Consequently, Tech Mahindra (holding 31% stake in Satyam) bought Satyam renaming it on June 21,
2009, as ‘Mahindra Satyam’ and replaced its executive Board by appointing its (Tech Mahindra) CEO and
MD Vineet Nayyar as Vice Chairman (who in December 2009 was promoted as Chairman), its
international operations head CP Gurnani as CEO and Subramaniyam Durgashankar as CFO.
The executive Board appointed Deloitte Haskins & Sells as the company’s statutory auditors to restate
its accounts.

SWIFT GOVT. ACTION SAVED SATYAM ULTIMATELY…
On January 7, Ramalinga Raju emailed his resignation to market regulator SEBI admitting to financial
irregularities, which, in less than 2 hours, was forwarded to the Ministry of Corporate Affairs (MCA).
The same day, the Ministry asked its two wings ICAI and ICSI to inquire into the role of auditors and
company secretaries for swift regulatory action.
There was an emergency inter-ministerial meeting next day ie on 8th (a govt. holiday). Concurrently,
the Ministry was drafting the petition to be filed before the Company Law Board (CLB). The very next day,
the Ministry got the CLB order superseding the Satyam board with Govt. appointed directors.
SEBI relaxed the take-over code per se on an application by the Satyam board to meet the emergency
like Satyam where government suspended the board of a company and appointed directors who act for
the public good without any payment or compensation.
Clearly, the MCA acted swiftly and thoughtfully and saw the issue as much larger than that of an
individual company. Satyam could not have been saved if there was any delay in decision making at the
government level. Investigations also progressed as swiftly as the process of rescuing Satyam. The Govt.’s
efforts to save Satyam were thus both significant (without precedent in India), and successful.

Why Govt. Mediated…?
Govt. was very concerned about it’s Image in International Market especially IT , as it
is also main source of foreign exchange for the country and drives economic growth of
a country.
To safeguard the Interest of small investors, So that faith can be restored in the
market again.
To take care of the employees working in Satyam. As it was never their fault for
whatever happened. Their job has to be secured by the Govt. that too in economic
recession time.

Operating performance of Satyam: 2003 - 2004 to 2007 - 2008 (Rs. in million)
Particulars 2003 - 2004 2004- 2005 2005- 2006 2006 - 2007 2007 - 2008
Average
Growth
Rate (%)
Net Sales 25,415 34,642 46,343 62,285 81,373 34
Operating Profit 7,743 9,717 15,714 17,107 20,857 30
Net Profit 5,558 7,503 12,398 14,232 17,157 34
Operating Cash Flow 4,166 6,387 7,868 10,391 13,709 35
ROCE (%) 28 30 31 31 30 30
ROE (%) 24 26 27 28 26 27

Fabricated parts of balance sheet and income statement of Satyam.
Items Actual (Rs.) Reported (Rs.) Difference (Rs.)
Cash and Bank Balances 321 5,361 5,040
Accrued Interest on bank FDs 0 376 376
Understated Liability 1,230 0 1,230
Overstated Debtors 2,161 2,651 490
Total - - 7,136
Revenues (Q2 FY 2009) 2,112 2,700 588
Operating Profits 61 649 588

FACTORS CONTRIBUTING TO FRAUD
1. Greed for land, money, power, competition, success, prestige etc. compelled Raju to “ride the tiger”
2. Ambitious corporate growth
3. Excessive interest in maintaining stock prices / Insider Trading
4. Stock market expectations
5. Audit failures- Internal & External
6. Regulatory flaws
7. Lax BOD
8. Weak Independent directors and Audit committee
9. Whistle blower policy not being effective
10. Executive incentives ESOPs issued for fake bills
11. Deceptive reporting practices-lack of transparency
12. Rating agencies & investors

Regulators involved in investigating Satyam include:
1. Securities and Exchange Board of India (SEBI)
2. Ministry of Corporate Affairs (MCA)
3. Central Bureau of Investigation (CBI)
4. Serious Fraud Investigation Office (SFIO)
5. Company Law Board (CLB)
6. Institute of Chartered Accountant of India (ICAI)
7. Central Board of Excise and Customs (CBEC)
8. Enforcement Directorate (ED)
9. Employees Provident Fund Office (EPFO)
10. Legal action & Class-action suits outside India in US and other countries.

10 people found guilty in the case:
1. B. Ramalinga Raju - Chairman
2. B. Rama Raju - B.Ramalinga Raju’s brother and Satyam's former MD
3. Vadlamani Srinivas - Former CFO
4. Subramani Gopalakrishnan - Former PwC auditor and
5. T. Srinivas - Former PwC auditor
6. B Suryanarayana Raju - Raju's another brother
7. G. Ramakrishna - Former employee - Ex-Vice President, Finance
8. D. Venkatpathi Raju - Former employees
9. Ch Srisailam - Former employees
10. V.S. Prabhakar Gupta - Satyam's former internal chief auditor

Securities and Exchange Board of India (SEBI):-
15th July 2014 – SEBI directed to disgorge unlawful gains made by the B. Ramalinga Raju with other entities jointly or
severally by way of sale / transfer of shares of Satyam Computers while in possession of UPSI within 45 days with simple
interest @ 12% p.a. from January 07, 2009 till the date of payment – Rs. 1848.93 Crores
Sr. No. Name of the Entity Unlawful Gain Mode
1 Mr. B. Ramalinga Raju 26,62,50,000 Sale of Shares
2 Mr. B. Rama Raju (Brother) 29,54,35,195 Sale of Shares
3 Ms. B. Appalanarasamma (Mother of B.Ramalinga Raju) 8,00,43,125 Sale of Shares
4 Ms. B. Jhansi Rani (Wife of Mr. B Suryanarayana Raju 8,50,63,350 Sale of Shares
5 Mr. B. Rama Raju Jr. (Son of Mr. B Ramalinga Raju) 46,00,17,218 Sale of Shares
6 Mr. B. Suryanarayana Raju (Brother) 89,71,70,765 Sale of Shares
7 Mr. B. Teja Raju (Son of Mr. B Ramalinga Raju) 49,31,43,762 Sale of Shares
8 Mr. Anjiraju Chintalapati (since deceased) (Father of Mr. Chintalapati Srinivasa Raju) 7,92,13,750 Sale of Shares
9 Mr. Chintalapati Srinivasa Raju (Director) 1,36,64,01,742 Sale of Shares
10 Chintalapati Holdings Pvt. Ltd 82,49,37,875 Sale of Shares
11 Maytas India Limited (now known as IL&FS Engineering and Construction Co. Ltd.) 59,16,49,091 Sale of Shares
12
SRSR Holdings Pvt. Ltd. (Company controlled by Mr. B. Ramalinga Raju and Mr. B.
Rama Raju and Mr. Suryanarayana Raju)
12,58,88,00,000 Pledge of Shares
13 Vadlamani Srinivas 29,50,00,000 Sale of Shares
14 G.Ramakrishna 11,50,00,000 Sale of Shares
15 Prabhakara Gupta 5,12,65,000 Sale of Shares
Grand Total 18,48,93,90,873

B Ramalinga Raju, ex-Chairman; B Rama Raju, ex-Managing Director; Vadlamani Srinivas, ex-CFO; G Ramakrishna, ex-VP
(Finance); VS Prabhakara Gupta, ex-Head (Internal Audit) —Banned from the securities market for 14 years.
16th October 2018 – SEBI revised the quantum of disgorge of the wrongful gains within 45 days with simple interest @
12% p.a. from January 07, 2009 till the date of payment.
02nd November 2018 - SEBI revised the quantum of disgorge of the wrongful gains within 45 days with simple interest @
12% p.a. from January 07, 2009 till the date of payment.
Noticee Amount to be disgorged (Rs.)
B. Ramalinga Raju 26,62,50,000
B. Rama Raju 29,54,35,195
B. Suryanarayana Raju 81,84,35,650
SRSR Holdings Private Ltd. 6,75,39,48,813
Total 8,13,40,69,658
Noticee Amount to be disgorged (Rs.)
Vadlamani Srinivas 15,65,97,987
G.Ramakrishna 11,50,00,000
Prabhakara Gupta 48,00,105

ICAI - Details of Proceedings Initiated & Conducted against each individual Member
CA. S. Gopalakrishnan,
Statutory Auditor (Signing partner for the
period 1.4.2000 to 31.3.2007)
Removal of the name from the Register of Members permanently
Fine of Rs. 5 lac
CA. S. Talluri, Statutory Auditor
(Signing partner for the period 1.4.2007 to
30.9.2008
Fine of Rs. 5 lac
Filed an Appeal before the Appellate Authority against the order of
Disciplinary Committee
CA. Pulavarthi Siva Prasad (Audit Incharge for
the period 1.4.2001 - 31.3.2005)
Fine of Rs. 5 lac
Filed Writ in HC. HC granted stay in the matter
CA. Chintapatla Ravindernath (Audit Incharge
for the period 1.4.2005 – 30.9.2008)
Fine of Rs. 5 lac
Filed Writ in HC. HC granted stay in the matter
Shri V. S. Prabhakara Gupta
(then Head of Internal Audit Cell)
Fine of Rs. 5 lac
V. Srinivasu
(then CFO of the Company)
Fine of Rs. 5 lac
https://resource.cdn.icai.org/37306satyamverdict-icai.pdf

Central Bureau of Investigation (CBI):-
19th February 2009 – CBI had registered a case against B.Ramalinga Raju, Chairman of
M/s SCSL and others, on the request of Andhra Pradesh Govt. and further orders of GOI.
09th April 2015 – The Additional Chief Metropolitan Magistrate (ACMM), Hyderabad had convicted 10 accused i.e.
a) B.Ramalinga Raju, then Chairman, Satyam Computer Services Ltd; 7 years jail and fine of Rs.5.24 Crs.
b) B.Rama Raju, then MD, SCSL and brother of B.Ramalinga Raju; 7 years jail and fine of Rs.5.24 Crs.
c) Sri Vadlamani Srinivas, then CFO, SCSL; 7 years jail and fine between Rs. 26 to 31 lacs
d) S.Gopalakrishnan, then Auditor Price Water Coopers; 7 years jail and fine between Rs. 26 to 31 lacs
e) Talluri Srinivas, then Auditor, Price Water Coopers; 7 years jail and fine between Rs. 26 to 31 lacs
f) B. Suryanarayana Raju, then Director, SRSR Advisory Services Ltd.; 7 years jail and fine between Rs. 26 to 31 lacs
g) G. Ramakrishna, then Vice President(Finance), SCSL; 7 years jail and fine between Rs. 26 to 31 lacs
h) D. Venkatapati Raju, then Senior Manager(Finance), SCSL; 7 years jail and fine between Rs. 26 to 31 lacs
i) Ch. Srisailam, then Assistant Manager(Finance), SCSL and 7 years jail and fine between Rs. 26 to 31 lacs
j) V.S. Prabhakar Gupta, then Global Head, Internal Audit, 7 years jail and fine between Rs. 26 to 31 lacs
http://cbi.gov.in/pressreleases/pr_2015-04-09-1.php

The CBI trial saw a profusion of documentary evidence: 3 CBI charge sheets running in 650 pages, 3137 supporting
documents comprising 170,000 pages, and 226 witnesses.
According to CBI, it was a complicated case having international ramifications involving digital evidence, computer
forensic techniques, audit procedures, accounting standards, revenue records, source codes and computer network
logs, among others.

Serious Fraud Investigation Office (SFIO) An arm of MCA:-
13th January 2009 – Government ordered investigation into the Satyam scandal by the
SFIO, an entity that probes cases of economic offences of grave nature.
13th April 2009 – The report, which runs into over 3,000 pages, mainly deals with violations of sections 211, 205, 309 and
628 of the Companies Act, 1956. The report alleged that Satyam had committed nearly 30 violations, mostly under the
Companies Act 1956.
The SFIO, under the aegis of the MCA in consultation with the Solicitor-General, later initiated prosecution of the accused
(the Raju brothers, their accomplices, along with other directors) in December 2009. They filed 7 cases in regard of
company law violations.
The Special Economic Offences Wing Court at Nampally in December 2014 convicted the accused on six of the seven
charges. Raju and his brother were sentenced to 6 months imprisonment, and ₹0.5 million each for two of the cases (₹1
million each) overall: the judge directed that the jail sentences in all the cases would run concurrently. The paltry six month
sentence was the longest imprisonment term provided for under the Companies Act. Former directors, including Ram
Mynampati and Vadlmani Srinivas, amongst other top executives were fined ₹1 million each.
Significantly, independent directors (IDs) were also fined. The Harvard Business School Professor, and erstwhile Satyam
independent director, Krishna G. Palepu was fined ₹26.6 million, while other IDs, like Vinod Dham were fined ₹20,000. In
imposing fines on IDs, the court indicated that their duties were not to be taken lightly.

The ED investigation (ED):-
The ED launched its own investigation into the matter, under the Prevention of Money Laundering Act 2002 (‘PLMA
2002’), and filed a chargesheet against Raju and 216 others (including his kin), and 166 firms in October 2013.
The ED alleged that the accused had engaged in inter-connected transfers of wrongful gains due to sale of inflated
shares and bonus shares artificially creating distance between the criminal proceeds and the initial beneficiaries.
They also alleged that the 327 companies floated by Raju and his relatives were used to ‘layer the proceeds of the
crimes’, investing in several movable and immovable properties in their names and the names of these front companies.
The ED has attached 350 immovable properties and 5 movable properties valued at ₹10.75 billion, having taken
possession of most.

Foreign lawsuits :-
Foreign investors were keen to sue for losses as well.
Class-action suit in US - Mahindra Satyam bore the cost of these suits, reaching an out-of-court settlement of $125
million in February 2011 in a class-action suit in the US,
Settlement with US Securities and Exchange Commission (SEC) – Mahindra Satyam also settled the case with the US SEC
for $10 million in April 2011.
Foreign Investment Funds - They have also borne the costs in law suits launched by other foreign investment funds, like
Aberdeen Global, and 22 others for $68 million.

7,855
Crs.
• Total
Amount of
Financial
Irregularities
7561
• Number of
Fictitious
Invoices
5,352.8
Crs.
• Fictitious
revenue
reported
between
Apr-2002 to
Sept-2008
899.8
Crs.
• Fictitious
Interest
Income
recorded
between
2002 to 2008
206.1
Crs
• Fictitious
FOREX Gain
recorded
between
2002 to 2008
10,000
• Fictitious
Employees

FDs and Balances in Current Accounts
Balance in the Current A/C of SCSL (with Bank of Baroda, New York) was overstated by ₹ 1,731.88 crore as on September
30, 2008. The confirmation of balances received by SEBI, pertaining to 6 quarters (qtr. ended June 30, 2007 to September
30, 2008) from the bank during investigation did not match with balances as per bank reconciliation statement that forms
a part of the books. The details (figures in ₹ crore) are as under:
Cash and Bank Balance Bank of Baroda (BoB) New York Branch
Dates
Balance as per the
books
Actual Balance as per
confirmation
Difference in balance
30-Jun-07 543.06 48.89 494.18
30-Sep-07 415.32 29.47 385.86
31-Dec-07 595.79 25.24 570.55
31-Mar-08 855.00 43.85 811.15
30-Jun-08 1275.58 21.89 1253.69
30-Sep-08 1782.6 50.72 1731.88
SEBI outcome……..how they have committed the fraud

The company allegedly used to receive two sets of bank statements for its current account with Bank of Baroda, New
York Branch, which were
(i) ’Daily bank statement’ received through email and printed and filed in accounts wing,
(ii) ’Monthly bank statement’ received through ‘internal’ courier from its chairman’s office.
The closing balances as well as number of debit and credit entries in the two statements differed substantially. While
daily bank statements reflected true and correct entries and balances. The monthly bank statements were apparently
manipulated bank statements and they showed additional entries which were largely in the nature of extra receipts.
The daily bank statements were ignored by the officers of the company as well as the auditors of the company and it
was the ‘monthly statement’ that was used for the purpose of monthly closing of the bank ledger and preparation of
monthly bank reconciliation statement that were provided to the auditor.
PW failed to seek direct confirmation of bank balances from BoB. PW indicated that it had evidence of balance
confirmations of BOB, NY, only for 12 quarters out of a total of 34 quarters, and all these confirmations were obtained
by PW from SCSL. Even these confirmations were not original but were only photocopies of emails purportedly sent by
BoB, NY, to SCSL’s representative in New York and forwarded to SCSL in Hyderabad.
PW had failed to produce a copy of even a single direct request for confirmation of balance to BoB, NY.

Regarding FD accounts, held with 5 banks, these were overstated by ₹ 3308.41 crore as on September 30, 2008, in the
books of SCSL. In respect of FD balances, it was found that two sets of letters of confirmation of bank balances of the
company were available with the auditor:
(a) confirmation letter received directly from the bank, and
(b) confirmation letter received through the company.
The FD balances in letters of confirmation received directly in the office of auditor were found to be complete and
correct which tallied with bank confirmations received by SEBI, whereas the balances in the letters of confirmation
received by the company and handed over by it to the auditor tallied with the balances in the books which were
overstated and false. The comparison between the 2 balances as below (figures as on September 30, 2008; in ₹ crore):
Fixed Deposit Receipts
Name of the Bank
Amount as per
the books
Amount confirmed
by banks
Citi Bank 613.32 1.32
HDFC Bank 704.16 0
HSBC Bank 798.95 0
ICICI Bank 725.3 0
BNP Paribas 476.64 8.64
Total 3318.37 9.96

Invoices and reporting of revenues
7,561 fake invoices (tagged with the letter ’S’) were raised from 2003 onwards through a software tool named
“Invoice Management System” (IMS). The IMS was integrated with 5 other software applications viz OPTIMA
(Operational Real Time Project Management), SPR (Satyam Project Repository), eSupport (Application for
manpower and resources allocation), ONTIME, PBMS (Project Billing Management System).
OPTIMA is the application where when work is received by SCSL from any customer the work/project is assigned a
Project ID and Customer ID. Without a project ID, work would not commence.
SPR contains details of all projects done at SCSL.
The application eSupport is used to allocate manpower and resources and ONTIME is used to capture and calculate
man hours spent on a project for billing a customer.
PBMS is the billing application of SCSL. It is used to bill the efforts entered in ONTIME and to port the billed efforts to
IMS for invoicing.
The data from IMS was manually ported into the Oracle Financials (OF), at that stage revenue got recorded
in the books of SCSL.
The system also permitted manual introduction of data directly into the IMS, by porting it through MS Excel.
Fictitious invoices were introduced into the system by making use of this Excel Porting facility.

To generate invoices through this process, login through Admin ID was required.
These fake invoices were not have roots in OPTIMA, SPR etc. and were not visible to Business Finance
Team in the ‘e-IMS tool’, i.e., a web version of IMS which the business finance team uses for verifying
invoices and receivables.
Apart from the aforesaid fake invoices with respect to non-existent transactions/work orders, there were 27
invoices in the IMS which were for the development of certain customized products in respect of non-existent
customers (tagged with the letter ’H’).
These fake invoices were not have roots in project ID & SPR tools and they were not sent to customers also
Out of 7,561 fake invoices, 6,603 found placed in the OF and the invoiced amounts got recorded as sales
revenue in the books of accounts of SCSL amounting to Rs. 4746,56,78,376/-
As per SEBI decision, these invoices were in the nature of off-shore invoices.
The payment instruction in these invoices was different than the normal (wire transfer to specific bank),
as it requested for payment through cheque.
These invoices were not visible to business finance teams.
These invoices had no linkages in PBMS and had no roots in OPTIMA, SPR etc.
These invoices were not sent to customers.

Debtor Balances
The details of inflated debtors:

Receipt and Utilization
An amount of ₹1,425 Crore was received in the bank accounts of SCSL during the years 2007 and 2008, which was not
recorded in OF. Further, SCSL made payments of ₹195 Crore to various companies which were reflected in OF as advances
paid on behalf of one Panchakalyani Agro Farms Limited.

Abstracts from
Research Paper published by
Mr. Madan Lal Bhasin

SATYAM FRAUD METHODOLOGY UNVEILED
Raju mastermind this maze of Creative Accounting (CA) by projecting a perpetually rosy picture of the company to the
investors, employees and analysts, Raju manipulated the account books so that it appeared a far bigger enterprise than
it actually was.
The Satyam scam is clearly a case of abuse of creative accounting, in which the accounts were ‘cooked-up’ by creating
fake invoices for the services not rendered, recognizing revenue on these fake receipts, falsifying the bank balances and
interest on fixed deposits to show these fake invoices are converted into cash receipts and are earning interest, and so
on.”
This type of CA is both illegal and unethical.
Web of Companies
A web of 356 investment companies was used to allegedly divert funds from Satyam
Under Ramalinga Raju, Satyam floated 327 companies and published inflated financials.
These front companies purchased 6,000 acres of land, taken loans of Rs. 1230 crore from these companies, which were
not even accounted in books.

The CID investigation also revealed that Satyam had executed projects in the name of 7 non-existent companies:
Mobitel, Cellnet, E Care, Synony, Northsea, Autotech and Hargreaves. All these companies had several transactions in
the form of inter-corporate investments, advances and loans within and among them. One such “sister” company, with
a paid-up capital of Rs. 5 lakh, had made an investment of Rs. 90.25 Crs., and received unsecured loans of Rs. 600 Crs.
1) Cooked-Up Books of Accounts
Raju maintained thorough details of the Satyam’s cooked-up accounts and minutes of meetings since 2002. He stored
records of accounts for the latest year (2008-09) in a computer server called “My Home Hub.” Details of accounts from
2002 till January 7, 2009 (the day Mr. Raju came out with his dramatic 5-page confession) were stored in two separate
Internet Protocol (IP) addresses.
Satyam’s top management simply cooked the company’s books by overstating its revenues, profit margins, profits,
ghost employees etc. for every single quarter over a period of 5 years, from 2003 to 2008.
Raju also admitted to fudging the last financial result declared by the company, for the period ending Sept. 30, 2008.
The company reported revenues of Rs. 2700 crore, with an operating margin of 24% of revenues (or Rs. 649 crore)
against the actual revenues of Rs. 2112 crore, and an operating margin of 3% of revenues (or Rs. 61 crore). So, Satyam
had made a profit of Rs. 61 crore but declared a profit of Rs. 649 crore. The difference was Rs. 588 crore. The operating
profit for the quarter was added to the cash and bank balances in the balance sheet. Hence, cash and bank balances
went up by an ‘artificial’ Rs. 588 crore, just for the 3 month period ending Sept. 30, 2008. This was a formula that Raju
had been using for a while.”

The company had total assets of Rs. 8795 Crs. as on September 30, 2008. Once the non-existing Rs. 5040 crore of cash
and bank balances were removed from B/S, the “real” total assets fell to a significantly to Rs. 3755 Crs.
So, how did Raju managed to boost revenues? In order to do this, Raju created fictitious clients (to boot sales revenue)
with whom Satyam had entered into business deals. In order to record the fake sales, Raju introduced 7000 fake
invoices into the computer system of the company. Since the clients were fictitious, they could not make any real cash
payments. Therefore, the company kept on inflating the money due from its fictitious clients
Further, once fake sales had been recorded….fake profits were also made and reported in accounts. Ultimately, fake
profits brought in fake cash. Which therefore, needed to be invested somewhere. This led Raju to creating fake bank
statements (showing forged FDRs), where all fake (non-existed) cash that the Co. was throwing up was being invested.
Finally, Raju tried his best to use this “fake cash” to buy out two real-estate companies, called Maytas Properties and
Maytras Infra (both promoted by Raju’s family members) for a total value of $1.6 billion. The idea was to introduce in
company accounts some “real” assets against all the “fake” cash that the company had managed to accumulate, so far.
Unfortunately, that did not happen, and after this, Raju had no other way out but to come clean.
Shockingly, the scam had caused an estimated loss of Rs. 14,000 crore to investors and unlawful gains of Rs. 1900 crore
to Ramalinga Raju and others.

2) Falsification of Bank’s Fixed Deposits Accounts
The Satyam promoters regularly used to generate monthly bank statements to be fed into the bankbooks. Similarly, they
also used to generate bank balance confirmations at the end of every quarter, against non-existent fixed deposit receipt
(FDRs) and interest earned/due thereon.
From the books of Satyam, as well as, auditors records, it was noted that two sets of letters of balances confirmation of
FDRs were available with the auditors. These two sets included confirmations actually sent by banks directly to the
auditors (the genuine ones) in the prescribed format, and confirmations through forged letters purportedly sent from
various bank branches, but forged.”
Thus, as on 30 Sept. 2008, while the actual FDs balances with various banks was just under Rs. 10 crore, fake FD receipts
shown to the auditors totaled over Rs. 3300 crore.
Fake FDs had to be generated since fake business had to beshown to the stock markets, which meant the creation of
fake customers and fake invoices from these businesses. Fake businesses generated fake revenues which, in turn,
created the illusion of fake profit margins, and, finally, fake cash in the bank.
Satyam apparently was very poor on its business fundamentals—with margins being low in many quarters, including
negative margins in some quarters.”

Rs. 7,136.50 Crs.
Fraud Amount
Rs. 1,230 Crs.
Understated
Liabilities
5,040 + 376.5 +
490 = Rs.5906.5
Crs.
Overstated Cash
Balances,
Accrued Interest
& Debtors

3) Fake Invoices and Billing System
By using IT skills in-house and tampering with the invoice management system (IMS) of the company, a software
module that was internally developed. The CBI has revealed details of the fake invoicing system used by Satyam.
Regular Satyam bills were created by a computer application called “Operational Real Time Management (OPTIMA)”,
which created and maintained information on all company projects.
The “Satyam Project Repository (SRP)” system then generated project IDs; there is also an “Ontime” application for
entering the hours worked by Satyam employees; and a “Project Bill Management System (PBMS)” for billing. An
“Invoice Management System (IMS)” generated the final invoices.
In mandatory field earmarked “Invoice Field Status” Raju & Co. used 2 alphabets “H” (Home) or “S” (Super) to process
the entry. The invoices, thus created were “hidden” from the view to those who ran the finance units. There were about
74,625 invoices generated in the IMS between April 2003 to December 2008. Out of this about 7561 invoices marked
“S” in their invoice field status. Out of this, 6603 were also found on the company’s Oracle Financials software (OFS)
system, to make it seem like these were actual sales. Entries into this system get reflected straight in the P&L Account.
The balance of 958 invoices remained in the invoice state, i.e. within IMS system - they were not posted into the OFS.
Total revenues shown against 7561 fake invoices were Rs. 5117 crore. Of this, sales through the “reconciled” 6603
invoices were about Rs. 4746 crore. The CBI has also found that “sales were inflated every quarter and the average
inflation in sales was about 18%. After generating fake invoices in IMS, a senior manager in F&A (named Srisailam),

entered 6,603 fake invoices into OFS with the objective of inflating sales by Rs. 4746 crore. By reconciling the receipts of
these invoices, the cash balances in the company’s account were shown at Rs. 3983 crore.
The CBI officers have concluded that “the scandal involved this system structure being bypassed by the abuse of an
emergency ‘Excel Porting System’, which allows invoices to be generated directly in IMS….by porting the data into the
IMS.” This system was subverted by the creation of a user ID called “Super User” with “the power to hide/unhide the
invoices generated in IMS.” By logging in, as Super User, the accused were hiding some of the invoices that were
generated through Excel Porting. Once an invoice is hidden the same will not be visible to the other divisions within the
company but will only be visible to the company’s finance division sales team.
As a result, concerned business circles would not be aware of the invoices, which were also not dispatched to
customers. Investigation revealed that all the hidden invoices generated by using Super User ID in the IMS server were
found to be false and fabricated.
The face values of these fake invoices were shown as receivables in the books of accounts of Satyam, thereby
dishonestly inflating total revenues of the company.

4) Showing Fake and Underutilized Employees
Founder chairman, Raju claimed that the company had 53,000 employees on its payroll. But according to investigators,
the real number was around 43,000.
The 13000 fictitious/ghost number of employees could be fabricated because payment to these employees was faked
year-after-year: an operation that evidently involved the creation of bogus companies with a large no. of employees.
The money, in the form of salaries paid to ghost employees, came to around $4 million a month, which was diverted
through front companies and through accounts belonging to one of Mr. Raju’s brothers and his mother to buy
thousands of acres of land.
Making up ghost employees might sound complicated, but investigators said it was not that difficult: “Employees are
just code numbers in your system; you can create any amount of them by creating bogus employee IDs with false
address, time-sheets, opening salary accounts with banks, and collecting payments through an accomplice.
the utilization level shown in the latest investor update by the company is about 74.88% for offshore employees.
However, the actual utilization was 62.02%.This clearly shows that the bench strength was as high as 40% in the
offshore category. Further, as a result of underutilization, the company was forced to pay salaries to associates without
jobs on hand, which increased the burden on company’s finances.

5) Why Did Raju (Chairman) Need the Money?
Indeed, it started with Raju’s love for land and that mad thirst to own more and more of it.
Satyam planned to acquire 51% stake in Maytas Infrastructure Ltd. & Maytas Properties Ltd. for Rs. 7,800 Crs. The cash
so raised was used to purchase several thousands of acres of land, across Andhra Pradesh, to ride a booming realty mkt.
Cashing out by selling Maytas Infrastructure and Maytas Properties to Satyam was the last straw.
Satyam tried to buy two infrastructure company run by his sons, including Maytas, in December 2008. However, on Dec.
16, Satyam’s board cleared the investment, sparking a negative reaction by investors, which pummeled its stock on the
New York Stock Exchange and Nasdaq.
The board hurriedly reconvened the same day a meeting and called off the proposed investment. Unfortunately, the
matter did not die there, as Raju may have hoped.
In next 48 hours, resignations streamed in from Satyam’s non-executive director, Krishna Palepu, and 3 independent
directors.
“The effort failed and on 07th Jan. 2009, Raju confessed to irregularity on his own, and was arrested two days later. This
was followed by the law-suits filed in the U.S. contesting Maytas deal.” Four independent directors quit the Satyam
board and SEBI ordered promoters to disclose pledged shares to stock exchanges. The trigger was obviously the failed
attempt to merge Maytas with Satyam.

6) Lax Board of Directors
Satyam Board was composed of “chairman-friendly” directors, who failed to question the management’s strategy and
use of leverage in recasting the company.
They were extremely slow to act when it was already clear that the company was in financial distress. They acted as
mere rubber stamps and the promoters were always present to influence the decision.
The glue that held board members together was Mr. Ramalinga Raju (Chairman) was that each of the board members
was on his personal invitation and that made them ineffective.
Board ignored / failed to act on critical information related to financial wrong doings before the company ultimately
collapsed. It was only when Raju in Dec. 2008 announced a $1.6 billion bid for two Maytas companies and while the
share market reacted very strongly against the bid and prices plunged by 55% on concerns about Satyam’s CG, that
some of the IDs came into action by announcing their withdrawal from the Board, by than it was too late.
Satyam BODs investment decision to invest $1.6 billion to acquire a 100% stake in Maytas Properties and 51% stake in
Maytas Infrastructure (realty companies promoted by Raju’s sons) was in gross violation of the Companies Act 1956,
under which no company is allowed, without shareholder’s approval to acquire directly / indirectly any other corporate
entity valuing at over 60% of its paid-up capital. “Yet, Satyam’s directors went along with the decision, raising only
technical and procedural questions about SEBI’s guidelines and valuation of Maytas companies.

They did not even refer to the conflict of interest in buying companies in a completely unrelated business, floated by
chairman’s relatives. Indeed, one of the Independent Directors Krishna Palepu, praised the merits of real-estate
investment on Satyam’s part.

7) Unconvincing Role of Independent Directors
All non-executive directors (NEDs) at Satyam were allotted significant stock options at an unbelievable low strike price
of Rs. 2 per share, against the ruling price of Rs. 500 per share in 2007-08 and apart from this, they have also earned
handsome commissions during 2007 – 2008.
The idea of giving stock options & Commissions to IDs, was perhaps, an intelligent ploy by Raju to successfully
implement his plot at Satyam, with little resistance from the so-called IDs, to whom, he was supposed to report to.
It sounds ridiculous to listen to some of the independent directors at the Press interviews post-scandal that they were
not aware of what was going on at Satyam.
Further, highly respected persons like T. R. Prasad and Dr. Rammohan Rao, both received stock options and
commissions from Satyam, without wondering how this was acceptable to their status of IDs. Take the case of another
independent director, well-known Prof. Krishna Palepu….He accepted more than $200,000 in total compensation along
with 10,000 stocks (equivalent to 5000 ADR) and getting paid a fabulous fee of MINR 9.2 for conducting training
programs for Satyam employees on CG principles and their compliance. As an “independent” director, he should not
have accepted any consulting assignment from Satyam.
Satyam scam is one more proof that the mere compliance of SEBI’s rule of the minimum number of IDs does not
guarantee ethical practices. Past corporate history has clearly shown that IDs have not served their purpose.

Satyam’s sumptuous gift to its non-executive directors.
Name No. of Options Commission (in Rs.)
Krishna Palepu 10,000 1.2 millon
Mangalam Srinivasan 10,000 1.2 million
T R Prasad 10,000 1.13 million
V P Rama Rao 10,000 0.1 million
M Ram Mohan Rao 10,000 1.2 million
V S Raju 10,000 1.13 million
Vinod Dham 10,000 1.2 million

8) Tunneling Strategy Used by Satyam
As part of their “tunneling” strategy, Satyam promoters had substantially reduced their holdings in company from
25.6% (in March 2001) to 8.74% (in March 2008).
Further, as the promoters held a very small percentage of equity (mere 2.18%) on December 2008, the concern was
that poor performance would result in a takeover bid, thereby exposing the gap.
The aborted Maytas acquisition deal was the final desperate effort to cover up the accounting fraud by bringing in
some real assets into the business. When that failed, Raju confessed the fraud. Given the stake the Raju’s held in
Matyas, pursuing the deal would not have been terribly difficult from the perspective of the Raju family.
Satyam was brought to its knee due to tunneling. The company with a huge cash pile, with promoters still controlling it
with a small per cent of shares (less than 3%), and trying to absorb a real-estate company in which they have a
majority stake is a deadly combination pointing prima facie to tunneling.”
The reason why Ramalinga Raju claims that he did it was because every year he was fudging revenue figures and since
expenditure figures could not be fudged so easily, the gap between “actual” profit and “book” profit got widened
every year. In order to close this gap, he had to buy Maytas Infrastructure and Maytas Properties. In this way,
“fictitious” profits could be absorbed through a “self-dealing” process.

Promoter’s Shareholding pattern in Satyam
Particulars Mar-01 Mar-02 Mar-03 Mar-04 Mar-05 Mar-06 Mar-07 Mar-08 Dec-08
Promoter’s holding
(in% - age)
25.6 22.26 20.74 17.35 15.67 14.02 8.79 8.74 2.18

9) Insider Trading Activities at Satyam
Investigations into Satyam scam by the CID of State Police and Central agencies have established that “the promoters
indulged in nastiest kind of insider trading of the company’s shares to raise money for building a large land bank.”
According to the SFIO Report findings, “promoters of Satyam and their family members during April 2000 to January 7,
2009 sold almost 3.9 crore number of shares thereby collecting in Rs. 3029.67 crore. During this course, the founder ex-
chairman Ramalinga Raju sold 98 lakh shares collecting in Rs. 773.42 crores, whereas, his brother Rama Raju, sold 1.1
crore shares pocketing Rs. 894.32 crores.”
10) Gaps in Satyam’s Earnings and Cash Flows
Through long and bitter past experience, some investors have developed a set of early warning signs of financial
reporting fraud like “One of the strongest is the difference between income and cash flow. Raju manipulated this also.
During 2006 to 2008, cash flows were far less than net income due to accounting manipulations. Indeed, Satyam fraud
was a stunningly and very cleverly articulated comprehensive fraud.
The IDs of Satyam, institutional investor community, SEBI, retail investors, and external auditor—none of them,
including professional investors with detailed information and models available to them, could able to detect the
malfeasance.

11) Fake Audit and Dubious Role Played by Auditor’s
Many experts cast partial blame on Satyam’s auditor ‘Price Waterhouse (PwC)’ India, because the fraud went
undetected for so many years
Global auditing firm used Lovelock and Lewis as their agent, who audited the Satyam’s books of accounts from June
2000 until the discovery of the fraud in 2009. It is shocking to know that “PwC outsourced the audit function to some
audit firm, Lovelock and Lewis, without approval of Satyam.
However, Mr. S. Goplakrishnan and Mr. S. Talluri, partners of PwC had admitted they did not come across any case or
instance of fraud by the company
PwC did not check even 1% of the invoices neither did they pay enough attention to verification of sundry debtors,
bank balances and FDRs.
Unfortunately, the PwC audited the company for nearly 9 years and did not uncover the fraud, whereas Merrill Lynch
discovered the fraud as part of its due diligence in merely 10 days. Missing these “red-flags” implied either that the
auditors were grossly inept or in collusion with the company in committing the fraud.

12) Abnormal Audit Fees Paid to PwC India Agent
A point has also been raised about the unjustified increase in audit fees.
Over a period of 4 years, 2004-2005 to 2007-2008, the audit fee increased by 5.7 times, whereas total income
increased by 2.47 times during the same period.
Suspiciously, Satyam also paid PwC twice what other firms would charge, which raises questions about whether PwC
was complicit in the fraud.”
Another development that came under investigators lens was that between 2003-2008, audit fee from Satyam had
increased 3 times, which was almost twice to Satyam peers (i.e., TCS, Infosys, Wipro). This shows that the auditors were
being lured by the monetary incentive to certify the cooked and manipulated financial statements
Satyam’s total income and audit fees (Rs. in millions).
Year 2004 - 05 2005 - 06 2006 - 07 2007 - 08
Total Income (A) 35,468 50,122 64,100.8 83,944.8
Audit Fees (B) 6.537 11.5 36.7 37.3
% of B to A 0.02% 0.02% 0.06% 0.04%

13) Questionable Role of the Audit Committee (AC)
Surprisingly, the failure to detect the Satyam fraud is ‘unimaginable’ because it involves violating basic audit
procedures. Auditing cash is so basic that people do not think twice about accepting the number, never thinking to
ask questions about it.” Still, a basic question arises: “Where was the Audit Committee (AC)?”
The AC failed to raised the questions about what the company was planning to do with the cash, or how much it was
earning on the money, and so on.
The timely action on the information supplied by a whistleblower to the chairman and members of the AC (an e-mail
dated December 18, 2008 by Jose Abraham), could serve as an SOS to the company, but, they chose to keep silent and
did not report the matter to the shareholders / regulatory authorities.

14) The Aftermath of Satyam Scandal
At its “peak” market-capitalization, Satyam was valued at Rs. 36,600 crore in 2008.
Following the shocking disclosure, traders counter saw frantic selling on the bourses and nearly 143 million shares (or a
quarter of the total 575 million shares) had changed hands and finally, the shares closed down 77.69% at Rs. 39.95 at the
BSE, wiping out Rs. 139.15 per share in a single day.
After Wednesday’s fall, the firm’s market value has sunk to little more than $500 million from around $7 billion as recently
as last June.
The stock that hit its all-time high of Rs. 542 in 2008 crashed to an unimaginable Rs. 6.30 on the day Raju confessed on
January 9, 2009.
In New York Stock Exchange, Satyam shares peaked in 2008 at US $ 29.10; by March 2009 they were trading around US
$1.80. Thus, investors lost $2.82 billion in Satyam.

Some Lessons Learned…
1. Investigate All Inaccuracies……. Scrutinize at every level
2. Corporate Governance needs to be STRONGER
3. STRONGER BOARD through more accountability of Independent Directors
4. Shareholder activism
5. Provisions for class action suit.
6. Whistle blower norms – Immunity and Rewards
7. Improved disclosures
8. Harsh punishments and penalties

Satyam Scandal … an Accounting Scandal
Satyam Scandal in effect was an accounting scandal, which misled the market and other
stakeholders (including BOD, SEs, Investors, Regulators and others)
It was a fraud with collusion of promoter, employees, external agencies, accountants.
Various accounting and financial statements were manipulated and forged by intentional
omissions, inadequate disclosures and by intentional misapplication of accounting policies.
Assets were overstated than actual, fictitious deposits were shown in the Bank and also interest
on it.
It is not only an example of bad governance but also of dishonest governance to (or “intending
to”) siphon off public funds from the Company by manipulating data and accounts in connivance
with the external auditors.
This scandal is a complete display of one’s carelessness of fiduciary responsibilities, total collapse
of ethical standards; fierce competition and the need to impress stakeholders especially
investors, analysts, shareholders, and the stock market; low ethical and moral standards by top
management and, greater emphasis on short-term performance.

Largest accounting fraud in the Indian Corporate World
India's Enron
It was sheer example of Inadequacies of the country's corporate governance standards
Rs 70 billion financial scam in Satyam Computer Services is a “blot” on corporate India's
image, and the government was determined to unravel the “plot” and punish the guilty -
Prime Minister Dr. Manmohan Singh
Corporate confidence in India shaken by Satyam Scandal - Neil Baker IBA
The Satyam Scam was not an accounting or auditing failure but one of Corporate
Governance – Amarjit Chopra Ex-President of ICAI

Resulting Effect of the Satyam Scandal on Changes in Corporate Governance Strategies in India
National Association of Software and Services Companies established a corporate governance and ethics committee headed by
Narayana Murthy.
SEBI’s committee on disclosure and accounting standards issued a discussion paper in 2009 to deliberate on the voluntary adoption of
international financial reporting standards; This is now made mandatory in listed companies
MCA in 2009, issued a set of voluntary guidelines for corporate governance on the following issues:
• The Independence of Directors
• The roles and responsibilities of audit committees
• The roles and responsibilities of the Boards of companies
• Whistleblower policies
• The separation of the offices of the chairman and the CEO to ensure independence.
• A system of checks and balances.
• Terms and conditions of appointment of Directors such as their tenures, remuneration, evaluation, issuance of a formal letter of
appointment, and placing limits on the number of Companies in which an individual can be a Director.
• In 2010, SEBI amended the Listing Agreement to include the provision dealing with the appointment of a CFO.
In 2013, the Indian Company Law was amended, and it incorporated the following provisions:-
• It clearly defined the responsibility and accountability of independent Directors.

• It clearly defined the responsibility and accountability of Auditors.
• It provided for the compulsory rotation of auditors and audit firms.
• An auditor cannot perform non-audit services for the company and its holding and subsidiary companies. This provision is added
to ensure that there is no conflict of interest, which may arise if an auditor performs other functions for the same company such as
accounting and investment consultancy services.
• It provides for the duty of Auditors to report fraudulent acts noticed by them during the performance of their duties.
• It provides for having independent Directors on the Board of the Companies. (Independent Directors means, Directors who do not
have a material or pecuniary relationship with a company).
• Independent Directors have been barred from receiving stock options and are not entitled to receive remuneration for their
services, except for reimbursement. At least 1/3rd of the Board of a company has to consist of IDs.
• Audit committee has to accommodate a majority of IDs. One ID is required to be a member of the remuneration committee also.
• Additional disclosure norms are – providing for the formal evaluation of the performance of the Board of Directors, filing returns
with the Registrar of Companies with respect to any change in the shareholding positions of promoters and the top ten
shareholders, have also been mandated.
• Remedy for initiating class action suits against the company and its auditors for damages has been provided in the amended
Companies Act.

References:
https://trak.in/tags/business/2009/01/06/satyam-head-raju-admits-fraud-letter-board-directors/
//economictimes.indiatimes.com/articleshow/50476372.cms?from=mdr&utm_source=contentofinterest&utm_medium=text&utm_campaign=cppst
https://timesofindia.indiatimes.com/business/india-business/Satyam-Case-Timeline/articleshowprint/46860133.cms
https://economictimes.indiatimes.com/tech/software/satyam-employee-commits-suicide-fearing-job-loss/articleshow/3984293.cms
http://www.archerangel.com/wp-content/uploads/Resources2015811111128.pdf
Various Sebi Website and SEBI Order # WTM/GM/DRA 1/ 83 /2017-18 dated 10-01-2018
https://www.scirp.org/journal/PaperInformation.aspx?PaperID=70827
https://blog.ipleaders.in/indias-biggest-corporate-fraud-the-satyam-scam-and-the-role-of-sebi-and-sat/

You can fool all the people some of the time, and some of the
people all the time, but you cannot fool all the people all the time.
Abraham Lincoln
SATYAM Means TRUTH
Now, Satyam = + Rs. 7800 Crs. LIE

CMA Raman Khanna
khanna1975@yahoo.co.in
This ppt is prepared with an effort to simplify the contents, strengthen the understanding and is meant to
spread awareness and share the knowledge with professional colleagues, students, academicians and
interested public.
For any feedbacks, suggestions please drop an e-mail @ khanna1975 @lntmhps.com

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