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Two PwC officials arrested

The Andhra Pradesh state police on Saturday arrested two auditors of PricewaterhouseCoopers, Talluri Srinivas and S Gopalakrishnan,on charges of criminal conspiracy and cheating after the alleged falsification of accounts at Satyam Computer Services, said additional director general, criminal investigation department, A Siva Narayana.

The arrest of the two auditors, for the first time in the history of corporate India, sent shock-waves among the 1,50,000-odd chartered accountants’ fraternity here. The two auditors were produced before the magistrate today and the hearings were on till the time of going to the Press.

The role of PwC, the statutory auditor for Satyam, came under scrutiny after the software firm’s founder B Ramalinga Raju confessed on January 7 to perpetrating a Rs 7,000-crorefinancial fraud.

“We greatly regret that two Price Waterhouse partners have been detained today for further questioning. We do not know the basis for them being detained. Over the last fortnight, the firm has fully cooperated in all inquiries and has provided the documents called for by the Indian authorities. We share the regulators concern in understanding the full extent of the fraud and how it was accomplished.

Like everyone else, we were shocked by the massive fraud at Satyam and by the steps undertaken to conceal it. PW-India will continue to cooperate fully with the authorities,” said an official statement from PricewaterhouseCoopers. PwC took shelter under the roof of client confidentiality.

PwC said it was examining the contents of Raju’s confession. The police raided the audit firm’s offices and questioned both Srinivas and Gopalakrishnan who had certified the audited financial statements of the firm. The two auditors were, in fact, not partners of PwC but members of Lovelock & Lewes, a member firm of PwC at the time of signing of the accounts in April last year.
ICAI, an apex body for accountants and a quasi-judicial body, also issued a notice to PwC seeking information on the partners and copies of the accounts of Satyam that were audited by the firm. Later, PwC admitted that the audit was “false and no longer reliable” and withdrew its opinions on Satyam’s financial statements.

Investigating agencies including the Serious Frauds Investigation Office and SEBI are now probing PwCs role to ascertain if they connived with Raju to doctor the books.
“We need to wait for the investigations to be completed on the issue. We are really concerned over the developments which have taken place today. This raises serious doubts about the role of auditors and their involvement in the Satyam case. But this an aberration and not a systemic failure,” Ved Jain, president of the Institute of Chartered Accountants of India told ET.

Raju, his brother Rama Raju and chief financial officer Srinivas Vadlamani are in prison now. Srinivas confessed to the police that the statutory auditors (PwC) never pointed out any “deficiencies” during their discussions with him, according to the police.

PwC had audited around 139 companies in India in the last fiscal. Of this, 97 are listed and 45 are part of BSE 500 Index. A few of these companies including Glenmark Pharma are already reviewing their relationship. Some other large companies audited by PwC include Maruti Suzuki, United Breweries, United Spirits, GMR Infra, Piramal Healthcare and Marico.

Source: ET

Cooperative societies corrupt: Mahima Patel

A building cooperative society is involved in a scam worth Rs 20,000 crore -- more than three-fourth of the Satyam scam --according to Mahima J Patel, president of Suvarna Yuga.
"The society has violated the Land Reforms Act and distributed 100 sites to politicians," he said on Saturday.

According to the party's secretary general Ganesh, investigation was launched in 1988 on land acquisition. "A committee headed by G V K Rao was formed and many societies were found to be bogus. The societies were also involved in real estate business. But no action was taken against them while sites were allocated continuously," he explained.

"From the department of cooperative audit, we found that one of the societies was refunded Rs 66 crore for showing non-existent members," he added.

There are more than 300 building cooperative societies. "We believe the registrar of cooperative society is also involved in the scam, which is why no action has been taken. But we have got evidence," he charged.
"Public money has been misused by these societies and action must be taken."

Source: TOI

Three nabbed for card fraud

A crime branch team has arrested three persons who allegedly cheated banks by obtaining credit cards using fake documents. Cops saidthe three Mohammad Naushad of Haulambi Kalan, Mohammad Nadeem and Junaid of DDA Flats, Inderlok duped banks of around Rs 30 lakh using the credit cards issued to them.

"Posing as traders, they also managed to procured an EDC machine used to swipe cards during shopping and used it to make purchases,'' said Neeraj Thakur, DCP (crime and railways).
According to cops, following a complaint regarding fraudulent use of credit cards, a team led by ACP Sanjay Tyagi apprehended Naushad in Inderlok area on January 20. During interrogation it was revealed that he procured the credit card using a fake PAN card. Cops said Naushad runs a pan shop in the Inderlok while Nadeem has a garments shop.

"The three opened a shop in partnership and got an EDC machine from a private Bank. They applied for and got a number of credit cards from different banks on the basis of fake identities. We recovered two PAN cards, seven credit cards, six debit cards and 12 cheque books of different banks from the accused,'' said Thakur.

Source: TOI

Indian government extends Satyam probe to linked firms

Fraud-hit Satyam Computer Services Ltd said on Monday a U.S.-based client had canceled its contract, and the Indian government widened its probe to two firms linked to Satyam's jailed founder.

The government said the Serious Fraud Office's investigation into India's biggest corporate scandal had been extended to include Maytas Properties Ltd and Maytas Infra Ltd , the two firms Satyam tried to take over in mid-December before hastily backing down in the face of a shareholder revolt.

Corporate Affairs Minister Prem Chand Gupta told reporters investigators had informed the government about an "apparent nexus between the events that have taken place in Satyam and the following companies amongst others -- Maytas Properties Ltd and Maytas Infra Ltd."ad_icon

Satyam, India's No. 4 software services exporter, was plunged into crisis after founder Ramalinga Raju resigned as chairman earlier this month, revealing profits had been falsified for years and $1 billion of cash on the books did not exist.

In his January 7 resignation letter, Raju said the deal to buy the Maytas firms was his last attempt to resolve the problem of fictitious assets on the Satyam balance sheet. Maytas is Satyam spelt backwards.

Maytas Infra Ltd, a construction company in which Raju and his family hold a 36 percent stake, said on Monday its chief executive had resigned in letter sent on January 14.


Satyam, which specializes in business software, said earlier on Monday that a U.S.-based client, State Farm Insurance Co, had canceled its contract, "While we are disappointed in State Farm's decision to discontinue services, our executives are reaching out to clients around the world, and at this point, well over 90 percent of our clients have committed to continuing with Satyam," the company's spokeswoman said. She declined to give details of the contract.

A tech sector analyst with a Mumbai brokerage firm said State Farm was one of the top 10 clients for Satyam , who together accounted for a third of the outsourcing firm's revenue in the July-September quarter last year.

The analyst, who asked not to be named as he was not allowed to speak to the media, said he was briefed about Satyam's top clients and their revenue contribution a few months back by the company's management.

Shares in Satyam, which have tumbled about 85 percent since the scandal broke, ended up 4.1 percent at 25.45 rupees in a Mumbai market <.BSESN> that edged up 0.1 percent.
Other clients might also cancel orders, wary of business risks in Satyam, analysts said.
"Any customer dealing with Satyam at this point in time will be concerned with what is happening at the company now," said R.K. Gupta, managing director at Taurus Asset Management.

A government-appointed board at Satyam said on Saturday it was talking to banks about funding, saying all efforts were being made to ensure staff salaries were paid on time.
The board, which also discussed scheduling of vendor payments, said it had received expressions of support from clients. It said it was still looking for a new chief executive and chief financial officer for the outsourcing firm.

The Economic Times newspaper said the new board was looking to appoint up to three investment banks to explore the possibility of finding a buyer.ad_icon
But analysts said that would be difficult until the extent of the fraud was detected and measures to streamline operations were taken.

"A buyer will have to take the responsibility for the company, and I don't think any one will take a shot in the dark before the accounts are restated and the legal issues are resolved," said Kevin Trindade, an analyst with KR Choksey Shares and Securities.

The former chairman, managing director and chief financial officer of Satyam were moved to police custody on Sunday for four days after spending a week in jail. Under custody, the accused are held in a police lock-up to help investigators.

Raju's lawyer Bharat Kumar told Reuters the three were likely to be in police custody until Thursday morning, adding an application against them being held in jail had been deferred to Thursday. He did not give any reason for the postponement from Monday.

Source: Reuters

Accounting firm’s failed responsibility

“Accountants’ responsibility is to investors, not their clients’ management.” This was what world’s leading charted accountant Arthur Anderson used to say often. Anderson founded and headed — until his death in 1947 — one of the five biggest global accounting firms, Arthur Andersen LLP, which was — ironically enough — convicted for ‘Obstruction of Justice’ through shredding documents relating to its audit on Enron, resulting in the Enron scandal in 2002.

Back home, at long last, accounting firm Price Waterhouse, Banglore, has accepted the truth on Satyam that the accounts were fudged and audit report and opinions in relation to the company’s financial statements for the audit period — from the quarter ended June 2000 until the quarter ended September 30, 2008 — should no longer be relied upon.

Similar to Enron

The tragic story of Satyam is similar to the ones of the erstwhile U.S.-based utility company Enron and the auditing firm (now defunct) Arthur Andersen. As it has now happened in the case of Satyam, the two global giants took advantage of not only investors but also the public as a whole to illegally increase the personal wealth of the individuals who were involved — a greed that led to the corporate debacle of December 2001, when Enron filed for bankruptcy.

Dwelling on the sordid saga of Satyam, Ved Jain, President, Institute of Chartered Accountants of India (ICAI), the regulatory body of chartered accountants in India, hits the nail on the head, when he says that auditing firms can not shy away from accepting their responsibility when the companies they have audited are found to have doctoring their accounting books.

He says: “The audit firm’s statement does not absolve it of the default committed by signing those financial statements. Our penalty is quasi criminal as action can be against natural person not artificial person. But to ensure standard and discipline we do maintain register of firms whereby we do indicate here is a firm, where partners have found guilty.”

ICAI’s view

Once the ICAI indicates the names of tainted chartered accountants or firms, their names are not considered for allotment of audit by the Reserve Bank of India. “Now we have decided to write to the Securities and Exchange Board of India (SEBI) that they should include a clause in their listing agreement that such accounting firms will not be appointed by the listed companies. Further we will put such names of the firms on the website/public domain so that any company or person appointing them knows about them,” Mr. Jain discloses.

However, the accounting firm, Price Waterhouse, Bangalore, still would like to put the blame on Satyam’s former Chairman B. Ramalinga Raju. In its letter to the newly constituted Satyam board, the firm has suggested that its audit report on the company should no longer be relied upon “in view of the contents of the resignation letter of B. Ramalinga Raju.”

Mr. Raju’s letter stated: “The gap in the balance sheet has arisen purely on account of inflated profits over a period of last several years. 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 (annualised revenue run rate of Rs. 11,276 crore in September quarter, 2008, and official reserves of Rs. 8,392 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… The aborted Maytas acquisition deal was the last attempt to fill the fictitious assets with the real ones.” Price Waterhouse has said the financial statements for the period were prepared by the management. On its part, it planned and performed the required audit procedures on the statements and examined the books and records produced before them by the management. “We placed reliance on management controls over financial reporting and the information and explanations provided by the management, as also the verbal and written representations made to us during the course of our audits,” Price Waterhouse has said.

Regulators’ role

Clearly, the accounting firm failed in its responsibility to the investors of the company and the public at large. “The massive fraud that was quietly being hatched away from the public eye for a few years should not have escaped the eagle-eyed scrutiny of auditors — internal and external. The regulators must quickly find out whether it was also a case of unholy complicity and abetment,” says M. N. Chaini, President, Indian Merchants’ Chamber.

It is often argued that accounting and disclosure rules are good in India and the problem lies mainly in the enforcement. This is true to a degree but when widespread malpractices prevail, rules too must be tightened materially. “Many abuses remain hidden due to lack of quarterly consolidated numbers,” points out Nilesh Jasani, Head of Research, Credit Suisse, an international financial services company, "Subsidiary balance sheets are not always available. Lack of equity method of accounting – a global practice – for the standalone results permits mis-representation".

Mr. Jasani comes up with a suggestion to circumvent the situation that the one witnessed in Satyam’s case, when he says: “ICAI should immediately work against the increasing use of direct balance sheet entries or even worse, just mention in the notes for any mark-to-market losses or impairment incurred on any assets. Insiders’ pledging or loaning of shares should attract same disclosure as their buying and selling. We urge regulators not to tweak rules for temporary protection of corporate profitability, as they normally worsen disclosure quality and harm investors.”

Market understanding

The market is sophisticated enough to understand non-recurring losses. Regulation changes to suppress them — like Reserve Bank of India’s recent measures related to restructured loans not being non-performing — reduce disclosure quality for investors.

There is also a view that the ICAI should severely reduce the permitted items that companies can book direct in balance sheets. Most mark-to-market losses and impairment charges should flow through profit and loss statements. Investors are sophisticated enough to distinguish the non-recurring losses. In the near term, companies would be made to declare all un-booked mark-to-market losses every quarter.

Satyam’s is not just a failure of an inflated company, but a failure of an inflated economy. Bubbles are a phenomenon in inflated economies. Here there are two bubbles: equity and real estate. Former RBI Governor Y. V. Reddy had repeatedly warned that these bubbles might burst any time.

The Satyam group paid heavily for having invested huge funds in the real estate business which has suffered badly in the last two years. What expedited Satyam’s fall was its appallingly bad (say fraudulent) financial management, coupled with an unprecedented fall in stock market prices world over.

Thus goes a Sanskrit Subhashita: “Satyam bruiyat, Priyam bruiyat, na bruiyat Satyam apriyam (Speak truth, speak only that is palatable, do not speak truth that is unpalatable). Suffice to say, in Satyam’s case, the company lied through the teeth, it delivered something that is palatable to its investors in the initial stages by dressing up its accounts and in the end, Ramalinga Raju came up with purported “truth” about his company which turned out to be rather unpalatable for investors in his company, its over 50,000 employees, various financial institutions and the Government.

Source:The Hindu

Ramalinga Raju beats Obama on web popularity charts!

He may be popular for all the wrong reasons, but Satyam's disgraced founder Ramalinga Raju has beaten US President-elect Barack Obama
on internet popularity charts in India, and is closing the gap abroad too.

By now infamous IT czar Raju shot to limelight earlier this month after disclosing what has emerged as the country's biggest ever corporate fraud in India and has been called 'India's Enron' right from the word go.

Google's search volume index shows Raju and Obama were generating almost equal searches from India during the first six days of the year, with Obama leading by a small margin.

However, Raju jumped up the charts on January 7, when he admitted to a massive fraud of about Rs 7,800 crore.

The search volumes for Raju are estimated to have been over 10 times more than that of Obama on January 7, after which it has been declining consistently but Raju is still holding an edge over the US President-elect.

In terms of search volumes generated from various regions, Raju's own state Andhra Pradesh is on top, followed by Tamil Nadu, Karnataka, Gujarat, Maharashtra and Delhi. In terms of cities too, the maximum search volume has been from Hyderabad, where both Raju and Satyam are based, followed by Chennai, Bangalore, Pune, Mumbai, Mahape and Delhi.

As regards searches for Obama, Tamil Nadu has been on the top, followed by Maharashtra, Karnataka and Delhi among the regions. For cities, the maximum search volumes for Obama has come from Chennai, Mumbai, Navi Mumbai, Bangalore and Delhi.

Outside India too, Raju has generated significant search volumes from UAE, Singapore, Finland, US, Poland, Australia, UK, Canada and Germany, but has lagged Obama.

Raju has been searched for in Abu Dhabi, Singapore, Dallas and San Fransisco, while search queries have come in Polish language too, other than English.

Source: ET

Grand opposition alliance in the backdrop of Satyam scam

The Satyam scam has finally started making its presence felt on the politics of Andhra Pradesh. Announcing a grand non-Congress
alliance, Telangana Rashtra Samithi president K Chandrasekhara Rao said on Thursday there was no question of sailing with Congress after the Satyam scam.

At a joint press conference in Hyderabad on Thursday, TDP chief N Chandrababu Naidu, CPM state secretary B V Raghavalu and CPI leaders Survaram Sudkhakar Reddy and K Narayana accused chief minister Y S Rajasekhara Reddy of "personally negotiating with some companies the possible takeover of Satyam Computer Services'' before former Satyam boss Ramalinga Raju admitted to the fraud. The leaders said the Satyam episode was a "Rajasekhara Reddy-Ramalinga Raju joint scam'' and hinted that the CM was aware of the state of affairs at the company much before it became public.

The press conference was held after a four-hour meeting of the new alliance partners at the residence of the TDP chief. Chandrasekhara Rao said he had decided not to keep any track with Congress after the Satyam scam came to light. The leaders said there was enough evidence to prove that the CM had an interest in Satyam.

On the Congress charge that it was the TDP chief who had promoted Ramalinga Raju, Chandrasekhar Rao said: "Yes, it was Naidu who made Ramalinga Raju share the dais with the then US President Bill Clinton. At that time, Satyam's dealings were clean and it was among the top companies. But things changed after YSR became CM. YSR should also explain whether he was informed by Ramalinga Raju about his plans to take over Maytas.''

Source: TOI

Satyam fiasco: Options for small investors?

Holding onto stock that may be near worthless, Satyam's shareholders are living through their own hell even as Ramalinga Raju spends his days behind the bars. They are the hapless victims of Raju's unimaginable deceit.

With the stock down 82 per cent, the company’s shareholders are looking for ways to recover some of their losses. So what are their possible redressal options?

Investors can file a criminal lawsuit for cheating and breach of trust. They can also approach the civil courts to claim damages or demand a seat on Satyam's board from CLB under section 408. CLB can be approached only if applicants collectively hold 10 per cent stake.
“Investors, at least one-tenth of the investors, can file application under the company law board seeking an order to put a nominee on the board of Satyam whereby they can have a greater role in decision making in Satyam,” said Abhixit Singh, Partner, Titus & Co.

But for small investors to form a group that commands 10 per cent of the voting rights is a tall order, given their miniscule individual stakes. Even fighting a long drawn civil suit isn't a palatable option with small pockets.

"A civil suit for the recovery of damages for fraud is a remedy available to the shareholders as well. However, in the Indian scheme of things, civil lawsuits will take their own time. There are delays in the system and it’s not easy to get trials. Also Indian courts are not known to award very high damages," said Akhil Hirani, Managing Partner, Majmudar &

History is replete with examples of scamsters like Harshad Mehta and Ketan Parekh who have roamed free as the courts take years to give their verdict. One wonders how long it will take to entangle the Satyam mystery and start the process of recovery of assets.

The government needs to find an alternate scheme to protect investor interests like an investor protection from scam fund.

Source: NDTV Profit

SC quota: Ex DDA staffer got 38 flats

With the arrest of former DDA employee M L Gautam (64) on Thursday, the economic offences wing (EOW) of Delhi Police claims
it has got hold of the brain behind the DDA housing scam. Reportedly also under the scanner is another retired DDA employee, of commissioner rank, who is said to be absconding.

According to the police, Gautam filed as many as 1,200 applications under the SC category, using forged documents of applicants mostly hailing from Bulandshahr in Uttar Pradesh.

Police seized a visiting card from Gautam in which he claimed to be a DDA consultant, an identity he had been using ever since his retirement from the DDA telephone exchange department in 2004. Gautam had an office at Milansar Apartment in Paschim Vihar and lived in another flat in the same locality. Several documents suggesting that the entire DDA scheme was hijacked by the property dealers with Gautam's help were also seized.

Based on Gautam and accused Deepak Kumar's statements, police also arrested Rajuram (30), a Dwarka-based property dealer, on Thursday. "Rajuram had given Rs 9 lakh in cash to Deepak and Gautam to apply in the scheme and with that money used to procure bank loans, nearly 150 forms were submitted under the reserved category," said additional CP (EOW) SBK Singh. All three were jointly interrogated by the police and reportedly confessed to their crime.

The police have also found that out of the 1,200 forms submitted by Gautam under the SC category, 38 flats were allotted to him. Gautam also revealed the name of several others who were involved. "He trained seven or eight men at his office in Paschim Vihar for several months and we are trying to trace them. Gautam's mobile number is also being scanned for more leads," said a senior police officer.

Meanwhile, Deepak told the police that he received the money from Rajuram on October 15, a day before the last date of submission of DDA forms. Deepak and Gautam gave two cheques of Rs 4.5 lakh each as security to Rajuram, which police have seized. "Since Deepak was working as a direct sales agent of two banks, he might have got the cheques from someone. We are trying to establish whose cheques were used to pay Rajuram," said a senior police officer of EOW.

Investigations have also revealed that absconding accused Suresh Kumar Meena invested Rs 30 lakh in the scam, which he got after selling his flat in Rohini. Another dealer, Vijay, invested as well. Sources claimed that around Rs 65-70 lakh were put in for the purpose of procuring bank loans by the scamsters who submitted 1,400 forms under the reserve category.

Meanwhile, policemen camping in Jhunjhunu in Rajasthan returned to Delhi on Thursday and said they had unearthed several incriminating documents at the instance of Laxmi Narayan Meena. The seven successful allottees in Jhunjhunu have also stated to the police that after the DDA draw result, Suresh Meena and Laxmi Narayan came to their homes and took away documents signed by them.

The police said the role of other DDA officials was also under the scanner and they were examining the application forms seized from the accused and trying to ascertain whether the scamsters tried to apply through the general category as well. The forensic report on the software used in the DDA draw is awaited. A telefax number 011-26851999 is also being operated by the police to help the public inform them in case their details or documents have been misused.

Gautam and Kumar were known to each other as they were both residents of Paschim Vihar and met during morning walks. "Gautam apparently told Deepak it was wiser to apply in the reserved category. He also advised him to apply specifically in the ST category as chances of getting flats that way were high. He also promised to help as he knew a lot of people in DDA," a senior police official said.


Employees face fallout of Satyam fiasco

Satyam's tag line is "Business Transformation. Together". In the last one week, its 50000 employees have seen their lives transformed in a way they never anticipated. If the Satyam I-card was once a coveted passport, now it seems banks and car dealers have become extremely wary of the Satyam brandname.

On Saturday, a day after Ramalinga Raju was arrested, Amit Prasad, CEO of Satnav Technologies, got two SMSes and a call from his three credit card agencies. All of them informing him that his credit card limit had been slashed by 80 to 90 per cent. Prasad suspects this is because the agencies perhaps still have his name as a Satyam employee even though he quit the company five years back.

"It is too much of a coincidence that three people call or SMS me on the same day and say your credit limit is slashed by 80 per cent. It is a case of people going overboard. Other examples are a pearl dealer saying discounts are no longer available on a certain identity card. If I am walking in with cash, why should that be there. If I am ready to pay cash for a car loan, why should I be denied a discount?'' he says.

The fallout of the Satyam fiasco is being felt by other IT professionals as well. In the last one week, many of them were reportedly asked to furnish their December salary certificate to banks that have extended home loans to them.

Vikram Kumar, director (India), MAQ Software, says: "A number of my friends told me that their project and HR managers are being contacted to ask whether they are viable and worth giving the credit cards and home loans.''

For Satyam employees, clearly the period of uncertainty is made worse by what seems to be the larger impact of working for what was one of India's most respected software companies.

Employees are now venting in cyberspace.

On a blog a team of Satyam employees write: "We have no sympathies with scamsters cooling heels in Chanchalguda jail near Hyderabad. Try them. Punish them. Find out who colluded them and bring them to justice process too. ASAP. But we walking away from Satyam means walking away from our own history, our own last few years"

On another blog, one more employee writes: "Is it a reality or a dream?" I was asking myself. While I have seen the fall of few companies before my eyes, I always had a feeling that I was sailing on 'The unsinkable' but I was taken aback by the recent events!"

No matter how this saga ends, life for Satyam employees, it seems, will never be the same.

Source: NDTV

Board Tries to Chart Recovery for Scandal-Ridden Indian Firm

The new government-appointed board of the fraud-plagued Satyam Computer Services is scrambling to secure financing and fill management positions, board members said after a meeting on Monday in Hyderabad. Two of the company’s former executives, meanwhile, described the details of the fraud to the police.

The technology sector in India was dealt another blow after the World Bank said two other outsourcing firms — Wipro and Megasoft Consultants — were barred in 2007 from contracts with the bank for four years.

Satyam is struggling for survival, after its former chairman, B. Ramalinga Raju, confessed in a letter last week to falsifying some $1 billion in cash at the company and vastly inflating profit margins.

The company has “working capital issues” that need “immediate attention,” said Deepak Parekh, an interim board member and the chairman of the Housing Development Finance Corporation, at a news conference on Monday. Satyam may have trouble meeting payroll for its 53,000 employees at the end of this month, analysts say.

The new board will appoint an accounting firm in the next 48 hours to review and restate Satyam’s numbers, and announce third-quarter results, Mr. Parekh said.

Indian officials might step in to provide capital if needed, politicians in New Delhi said on Monday. “The government is keen to do everything possible to quickly get the organization on its feet and conduct business as usual,” Mr. Parekh said.

Mr. Raju and his brother, B. Rama Raju, were arrested on Friday, and Vadlamani Srinivas, its former chief financial officer, was arrested on Sunday. They are being charged with criminal fraud, cheating and falsifying records. All three have resigned.

In a taped confession to the police, Mr. Srinivas said that he had been specifically asked not to handle the company’s bank deposits, and that he had been presented with the company’s balance sheets only a week before board meetings.

Mr. Srinivas said he had suspected that something was wrong when the company was late with bills, but he said he had been forbidden by Satyam’s chairman and managing director from using fixed deposits to pay them. A transcript of Mr. Srinivas’s confession was obtained by the local television news channel CNBC-18 and reviewed by The New York Times.

Source: NYT

Man who lifted lid off DDA scam arrested

Delhi Police's Economic Offences Wing (EOW) made their second arrest in the DDA scam - shockingly, the "whistle blower" of the scam,
30-year-old law graduate and property dealer Deepak Kumar.

"We have incriminating evidence against him and his name cropped up during the interrogation of Lakshmi Narayan Meena, the prime accused in the scam. We recorded his statement on Saturday and will further question him now," said a police officer. Additional CP (EOW) S B K Singh refused to comment about the arrest.

The development however has caused outrage in some circles with complainant Udit Raj questioning the need to arrest Deepak when policemen knew all along that he had been a part of the racket and that's where his information came from.

"This is a bid to punish him for speaking up. Deepak is a property dealer who was initially involved in the scam, but then he switched sides. Neither Deepak, nor me ever kept this information from police. In fact, we reported to Malviya Nagar police station on October 31 last year, more than a month and a half before the draw, telling them about everything. They ignored the complaint and took no action. On November 10 again, we filed a complaint at the Pashchim Vihar police station and named Rakesh Agarwal, Bhaskar, Suresh Kumar and Vijay Kumar along with LN Meena, but they took no action. It is their inefficiency that the draw was allowed to happen on December 16. After this no citizen will ever come forward to confess something he has done in the past and thus help unravel rackets," said Raj.

In fact, while speaking to TOI earlier on Sunday, Deepak had expressed fear that he would be framed. "My conscience just wouldn't allow me to go on with the scam and so, I informed the police much in advance of the draw, but I fear that i will still be framed in this," he said.

Raj said that Deepak would be produced in the court on Monday and they would try to get his bail done. He added that after police took his statement on Saturday, Deepak was called for some more "questioning" on Sunday and was instead arrested.

Deepak is a law graduate and first met the scamsters back in July 2008 when he was approached by fellow property agents to participate in the scam. It was in beginning October that he decided to blow the lid off the scam and filed a complaint along with Raj, a former Revenue services officer and an active RTI activist.

Source: TOI

Satyam's $1-billion fraud shakes India

The son of farmers leaves his village behind, moves up from textile mills to real estate to IT outsourcing for multinational firms. He emerges as one of India's wealthiest and most famous entrepreneurs -- until he reveals that his empire was floating on an accounting lie and it all comes crashing down.

The U.S. has its Wall Street meltdown and the Bernard Madoff investment scandal. India has Ramalinga Raju, who appears to have perpetrated the nation's largest corporate scandal in recent memory.

What has people really scratching their heads is the way the 54-year-old Raju, co-founder of Satyam Computer Services Ltd., chose to signal the game was up: with what some have dubbed a "come-and-get-me" letter released Wednesday that detailed how he'd perpetrated the fraud.

In his mea culpa, Raju lays out how small amounts of fake profits and cash accounts built up over several years until the gap between real and imaginary assets eventually approached $1 billion.

"It was like riding a tiger, not knowing how to get off without being eaten," he wrote. He added that he alone was responsible, his board was blameless and that even top managers had no idea of the fraud.

Some observers are skeptical. "It's impossible to believe he acted alone," said Surjit Bhalla, managing director of Oxus Fund Management in New Delhi. The government appears to agree.

Late Friday, it stripped Satyam's directors of their power, ordered them replaced by independent board members and arrested Raju and his brother on charges of conspiracy, forgery, fraud and criminal breach of trust, according to local media reports. The arrests ended two days of speculation that he had fled to Texas; Dubai, in the United Arab Emirates; or some other distant hideaway.

Questions have also been raised about how top global accounting firm PriceWaterhouseCooper signed off on Satyam's books for eight years and how regulators in India, Europe and the United States apparently failed to pick up any whiff of problems. The accounting firm has denied any wrongdoing and pledged to cooperate with authorities.

Satyam, based in Hyderabad, provided back-office operations for hundreds of corporations, including billing and system integration and technology support. The company grew from its original 20 employees to 53,000 people in 66 countries. Raju picked up 185 Fortune 500 clients -- General Electric, Nestle and Microsoft among them -- becoming an example of India's high-tech ambitions while drawing the ire of U.S. and European labor groups fearful of job losses.

Though there's little evidence that the fraud leaked over to Indian banks or hurt Satyam's customers, shareholders have watched the value of their investment all but disappear. And one Indian job website reported receiving 15,000 resumes from Satyam workers this week.

"Raju has cheated me and millions of shareholders," said Rajesh Shrivastava, 43, a businessman who owns 5,000 shares. "I still fail to believe that I have almost lost everything. The god of IT has failed me."

Those who have spent time with Raju describe him as a modest, thoughtful, seemingly honest man.

"All of us who know him are quite shocked," said Kiran Mazumdar Shaw, managing director of Bangalore-based Biocon, a biotech company. "I always thought I was such a good judge of character. Obviously I'm not."

In retrospect, Raju's story is rich with such ironies.

"Satyam" means "truth" in Sanskrit. And Raju's shelves groaned under the weight of honorary doctorate degrees and good-governance and creative entrepreneur awards.

But not everyone was impressed with the chief executive who loved science fiction, spicy Andhra Pradesh food and hiring people who could speak his native Telugu language.

"If you walk around Dalal Street, our equivalent of Wall Street, there's surprise but not shock," said Ramesh Damani, a member of the Bombay Stock Exchange.

"There was always a sense there was creative bookkeeping, although not necessarily fraud."

Traders speak of a smell test that left Satyam trading at lower price-to-earnings multiples, a measure of earnings potential, than other Indian IT giants in its class such as Infosys Technologies Ltd. The company seemed willing to give away far too much to reach a deal with brand-name global companies, said a lawyer involved in several deals with Raju.

The lawyer, who spoke on condition of anonymity, said that in retrospect, Raju's way of doing business suggested that it was more important to announce impressive deals and prop up the stock price than it was to adhere to strict profit-and-loss benchmarks.

"Other firms had a clear bottom line," he said. "Satyam was willing to do deals at all costs."

But Raju, who got a business degree at Ohio University and was one of the first to see the business potential in the Y2K scare, still has some supporters.

Residents of the village of Bhimavaram, where he grew up and created jobs, have rallied behind him. And some have applauded the way he left the stage. "To me Raju was a hero, and will always be a hero," said Sharad Kumar, 38, a businessman. "You tell me: How many people dare to come out in open and confess to such a thing? . . . What Satyam did was basically to make middle-class Indians dare to dream."

Analysts said the rising tide of hot money going into emerging markets in recent years and India's tech boom made it possible to keep the scam going for years.

"It was the best game in town," said Raamdeo Agrawal, managing director of Mumbai-based Motilal Oswal Securities. "The whole world loves you and you get hooked on it."

But in recent months, as the global economy soured and credit dried up, the walls started to close in. In desperation, Raju tried to engineer a "purchase" of two family firms last month, a deal that allegedly would have allowed him to post money transfers that didn't take place.But shareholders grew suspicious given the $1.6-billion price tag and Satyam's sudden desire to move into the completely unrelated infrastructure businesses.

A further blow came when the World Bank dropped its business with Satyam, citing "improper benefits" given to bank officials. And in what may have been the last straw, DSP Merrill Lynch was called in to broker a sale, only to resign as the company's advisor Tuesday. Raju released his letter the following morning.

"That may've been the trigger," said Manoj Vohra, director of India research with the Economist Intelligence Unit.

Analysts said that in the short term, this bombshell could dent the reputation of "India Inc." But barring another scandal, it would probably be recognized for what it is -- a case of irregularities by one company.

"I hope this is a wake-up call for everyone the world over," said Shaw, the biotech executive. "We've seen an economy of greed, fueled by scams and loose regulations leading to this recession. Good governance has never been held at a [proper] premium."

Source: LAtimes

Indian outsourcing scandal shakes Silicon Valley

The massive fraud that threatens Indian outsourcing giant Satyam Computer Services has sent tremors 9,000 miles to Silicon Valley, long an investor, partner and promoter of the South Asian country's rising tech industry.

The Satyam scandal, centered on $1 billion worth of falsified financial statements, is a severe blow to the image of India Inc. and is causing executives in the Bay Area to balance the risks of outsourcing against the cost savings. It highlights the dangers of U.S. companies handing over critical work to firms halfway around the world that they cannot control.

There is no evidence that U.S. companies directly lost money from the Satyam fraud. However, many could suffer production delays or other indirect losses.

"The question everyone is asking is: Is this the classic cockroach? If you see one, are there more around?" said Vivek Paul, former vice chairman of Wipro Technologies, India's third-largest software-services company, and now a Silicon Valley investor. "History has proven they never come in ones."

Satyam's 53,000 employees, including hundreds in the Bay Area, could lose their jobs. Numerous Fortune 500 companies, which rely on the Hyderabad software company to handle services such as billing and managing back-end systems, may have to scramble to find new outsourcing partners.

Sensitive information

Tech companies that entrust proprietary information with overseas partners are reviewing their trustworthiness. And the Satyam scandal, which exposed the lack of transparency and potential for corruption among family-owned businesses in India, could cause investors to pull back.

India's emergence as a global tech hub during the past decade has rearranged the global software industry. India's software and services industry, including homegrown companies such as Infosys, Tata, Wipro and Satyam, generates $52 billion a year in revenue. It forced competitors in the West to embrace a global work force to save money and gain footholds in emerging markets. Valley companies now employ tens of thousands of engineers in Bangalore and other major cities in the South Asian country.

The full extent of outsourcing by U.S. companies to India is unknown. However, more than $2 billion in venture capital, mostly from the valley, has been funneled into India in the past four years, according to Dow Jones VentureSource.

Satyam has dealings with numerous valley companies, but those companies typically decline to discuss their relationships with Indian outsourcers. Moving jobs overseas has been a highly charged political issue in the United States.

"It's something we are not commenting on," a Hewlett-Packard spokeswoman said in response to questions about Satyam.

Cisco Systems has had negotiations with Satyam about collaborating on a project, and once considered investing in the company, said a company spokesman. "We do not expect the situation to have any material impact for Cisco," the company said in a statement.

Applied Materials has a "supplier relationship with Satyam and they have employees assisting us here and in India," company spokesman David Miller said in an e-mail. "Beyond that our policy is not to comment on our suppliers' businesses or the nature of our business with them."

But experts say that at the very least, Satyam's implosion could cause customers to flee to a competitor, and that in turn could drive up the costs of outsourcing over the short term.

"If I were a customer of Satyam, I would be concerned about the stability of the company's work force," said outsourcing expert Michael Murphy, a partner with Pillsbury Winthrop Shaw Pittman in San Francisco.

Board members

The fraud also spotlights how many tech executives from the valley sit on boards of Indian companies. Satyam's board included Vinod Dham, father of Intel's Pentium microprocessor, and Krishna Palepu, a Harvard Business School professor and a corporate governance expert. Both resigned from the board. In an e-mail, Dham said it was not "appropriate" for him to comment about Satyam at this time.

Frequently, valley-based board members attend meetings "by phone in the middle of the night," said Rafiq Dossani, a Stanford University research scholar who specializes in relations between Silicon Valley and India.

"They are probably waking up to some realities," Dossani said. "You better not trust management. You have to ask about margins, visit clients. You are being paid a few hundred thousand dollars. You just can't pocket the money and sleep."

Late last week, Indian authorities arrested Satyam's founder and chairman, B. Ramalinga Raju, a familiar face in the valley who has admitted to misstating financial statements. Authorities also dismissed the remaining Satyam board members and ordered a review of the country's largest publicly traded companies.

Today, the Ministry of Corporate Affairs announced appointment of three business leaders to the board: Deepak Parekh, head of the Housing Development Finance Corp. bank; Kiran Karnik, the former head of Nasscom, a trade body of technology companies; and C. Achuthan, a legal expert and a former member of the Securities and Exchange Board of India.

For Satyam, the first warning signs came in December when investors revolted against a plan to spend $1.6 billion to buy a couple of family-owned businesses.

In India, investors are accustomed to some "leakage," but if the company is doing well, they're willing to overlook a family business siphoning off some profits, said one Silicon Valley executive with extensive dealings in India.

The Satyam scandal, though, has upended that arrangement, said the executive, who asked not to be identified. "It's fundamentally shaken investors."

While further revelations about Satyam are sure to come, most experts don't believe they will have long-term harm on outsourcing in India.

"What it will do is make outsourcing customers a little more cautious about who they contract with, and more mindful of the financial risks associated with outsourcing," Murphy said. "Until recently, no one was concerned about that."

But if the attention to this scandal exposes corruption in other Indian companies, the budding business relationship between the United States and India could be at risk, warned investor Paul.

"If there were to be one more mea culpa from an Indian company, we'd have a problem," he said.

Source: Mercury News

SFIO to probe Satyam scam with private help

The government, which moved in swiftly to protect the interest of stakeholders of Satyam Computers, has decided to order a probe by
the Serious Frauds Investigation Office (SFIO) into the scam. The decision on the SFIO probe is expected to be announced in the next five days. The RoC, which is conducting the preliminary investigation, this evening recommended a probe by the SFIO.

The RoC is finding it difficult to access important documents as they are not available in the corporate office. Some of these documents, sources said, are kept in company-owned premises 150 kms away from Hyderabad. The RoC has conveyed to the government that it has yet not been able to lay its hands on the bank account statements. The bank account statements are reportedly missing.

The government will also give the SFIO the mandate to hire services of private experts - lawyers, chartered accountants, etc - to aid its probe. The SFIO team will be assisted by officials of the RBI, SEBI, ED, Police, customs, excise, banking, revenue intelligence and forensic department. The investigations will cover eight companies of the group.

"The investigations will be carried out without hurting the interests of the company's stakeholders, employees and customers. The operations of the company will not be allowed to be affected as the government considers Satyam's operations and its talent important for the economy," said a senior government official.

The governnment leadership said stringent action will also be taken against the auditors. "The ICI is mandated by the Chartered Accountants Act, 1949 to take action against errant firms," said sources.

The action against the auditors will, however, depend on the result of the investigations of the SFIO.

Source: Economic Times

Market watchdog meets minister over Satyam scam

India’s capital market regulator C.B. Bhave met Corporate Affairs Minister P.C. Gupta Saturday evening to discuss the ongoing investigations into the Rs.70 billion (Rs.7,000-crore) Satyam accounting scam, a ministry official said.

?The ministry and SEBI (Securities Exchange Board of India) are jointly probing the Satyam scandal. Bhave has met the minister to discuss the developments that have unfolded of late,? he added.

Earlier Saturday, Satyam’s disgraced founder B. Ramalinga Raju and his brother B. Rama Raju were sent to jail by the VI Additional Chief Metropolitan Magistrate in Hyderabad till Jan 23.

The Raju brothers were arrested Friday night.

The government had intervened Friday to supersede the Satyam board. Announcing this, company affairs minister Gupta said at a press conference: “The government should be allowed to appoint 10 nominee directors for the company. The new board has to meet within the next seven days.

“The Company Law Board has already issued an order to the existing directors of the board restraining them from exercising their functions and the order becomes effective immediately,” the minister had added.

A SEBI team has been conducting the probe into the fraud since Thursday and checked the books of accounts at Satyam offices in Hyderabad.

Sleuths of the Criminal Investigation Department (CID) of Andhra Pradesh police grilled Raju and his brother for over three hours Friday night.

Source: Indo-Asian News Service

Govt, regulator ignored warning about Satyam

The Government and market regulators got enough warnings about the accounting fraud at Satyam Computers but they turned a blind eye, a former senior bureaucrat has claimed.

EAS Sarma, former secretary in the Finance Ministry, hinted that cheap land acquired with political patronage is at the root of the accounting scandal at Satyam. Sarma alleged that he had written to ministries and the Securities Exchange Board of India (SEBI) but was unheeded.

The trouble in Satyam, India’s fourth largest IT services vendor began in December 2008, when its chairperson B Ramalinga Raju’s proposal to acquire two real estate firms owned by his family was rejected by angry investors.

Maytas Infra, a real estate firm owned by Raju’s son, has been awarded the Rs 12,000-crore project to build the Hyderabad Metro. The company has been given prime land in Hyderabad as part of the contract to build the Metro—a deal that is now raising eyebrows.

Sarma said when he heard about the land allotments given to Maytas he complained to the Government. “As soon as I saw the land allotment, I gave a notice to the Government saying this whole thing is illegal, irregular and improper,” he alleged.

“While I was doing this and opposing the Hyderabad Metro project, Satyam was trying to buy Maytas group. I wrote a letter to the Secretary of Company Affairs (Ministry) and also to the SEBI Chairperson,” said Sarma.

“Later, I wrote to Secretary, Economic Affairs, saying that SEBI has delayed the enquiry. People have been opposing it (land allotments) but political leadership and the government has been highly insensitive and indifferent.

“Local people have been opposing all this. We have written several letters and in some cases we have even gone to the court for judicial intervention,” he claimed.

Satyam’s founder-chairman Raju resigned from the IT major's board on Wednesday after admitting a multi-crore fraud in the company’s accounts. In a letter, Raju said that the company had fraudulently incorporated a non-existent cash component and inflated the bank balance to reflect Rs 5,040 crore (Rs 50.4 billion) as against Rs 5,361 crores (Rs 53.61 billion).

Raju said he planned to balance Satyam’s books by acquiring Maytas. "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," he said.

The company has denied knowledge of Raju’s fraud and promises to cooperate with investigators looking at its accounts. Special teams of SEBI on Friday continued their probe for the second day into the Rs.70-billion Satyam fraud.

A three-member SEBI team headed by its southern regional manager A. Sunil Kumar was checking the books at Satyam offices here and Bangalore, while another team was looking into the records of Pricewaterhouse Coopers (PwC), auditors of the scam-tainted company, at its Jubilee Hills office.

Samuel Di Piaza, the CEO of PwC, the firm that audited Satyam’s accounts, is set to visit India to assess the impact of the scandal.

Source: IBN

Madoff pulls off the biggest scam in U.S. history

If the banking crisis has not convinced you that Wall Street is populated by a bunch of arrogant, greedy and amoral shysters, then the Ponzi scheme now unfolding should.

Reports are that Bernie Madoff , an erstwhile “pillar of Wall Street,” swindled $50 billion from a motley crew of rich folks, from Hollywood director Steven Spielberg to purportedly sophisticated fund managers, by promising returns of 15 to 22 percent on their money that not even the Almighty God could guarantee.

Turned in by sons
After investors became spooked by the ongoing global financial crisis and started demanding billions, Madoff reportedly felt compelled to confess to his sons that his reputation as an investment genius was “all just one big lie”; that his business was insolvent for years; that he was “finished and had absolutely nothing”; that “there is no innocent explanation”; and that he “expected to go to jail.” His sons, who evidently knew nothing about his scam, turned him in to the FBI. He has been charged and is currently holed up in his swank New York City apartment on $10 million bail.

It does seem rather miraculous that Madoff managed to dupe so many people for so many years by doing nothing more than stealing from Peter to pay Paul. (It is rather fitting that his last name is pronounced “MADEoff ”, as he made off with a whole lotta loot.) It is a measure of how successful he was in luring suckers into his scheme that stories abound about the number of people whose money he refused to take. In other words, you had to audition for the privilege of having Bernie steal from you.

Meanwhile, the scope of Madoff ’s fraud is such that it is on track to surpass the one perpetrated by the snake-oil salesmen at Enron, whic
h, at $60 billion, stands as the biggest in U.S. history.

What happened to earning money?
To delve too much into this sob story would be to indulge in the most unseemly form of schadenfreude (reveling in another’s misfortune), especially since his victims include worthy charities and pension funds that have lost their entire endowments. But I must observe that Madoff would not have been so successful if a bunch of greedy rich folks were not so eager to become even richer. And if the heads of many banks in America, Europe, Asia and the Middle East had been content to earn their money the old-fashioned way, Madoff would’ve been scheming only with millions, not tens of billions of dollars.

This scandal also confirms my abiding suspicion that much of the U.S. financial market is little more than a house of cards, in which croupiers with MBAs continually shuffle decks to determine winners and losers. Let us hope that the sublime fates of Enron’s Ken Lay and Jeff Skilling disabuses all White-collar criminals of their patently fatuous presumption that, because they swindle billions from stock portfolios and pension plans, they are somehow smarter and more honorable than street thugs who steal nickels and dimes (by comparison) from banks and purses.

‘Madoff scheme’
Unfortunately, as P.T. Barnum folklore has it, “Th ere’s a sucker born every minute.” Given the unprecedented level of this fraud, I hereby declare that we should retire Charles Ponzi and henceforth refer to the scheme that bears his name as a “Madoff scheme.” I have no doubt that Madoff will be convicted and sentenced to spend the rest of his life in prison, if he doesn’t opt instead to take the coward’s way out, suicide, instead.

Source: Florida Courier

Madoff pulls off the biggest scam in U.S. history

If the banking crisis has not convinced you that Wall Street is populated by a bunch of arrogant, greedy and amoral shysters, then the Ponzi scheme now unfolding should.

Reports are that Bernie Madoff , an erstwhile “pillar of Wall Street,” swindled $50 billion from a motley crew of rich folks, from Hollywood director Steven Spielberg to purportedly sophisticated fund managers, by promising returns of 15 to 22 percent on their money that not even the Almighty God could guarantee.

Turned in by sons
After investors became spooked by the ongoing global financial crisis and started demanding billions, Madoff reportedly felt compelled to confess to his sons that his reputation as an investment genius was “all just one big lie”; that his business was insolvent for years; that he was “finished and had absolutely nothing”; that “there is no innocent explanation”; and that he “expected to go to jail.” His sons, who evidently knew nothing about his scam, turned him in to the FBI. He has been charged and is currently holed up in his swank New York City apartment on $10 million bail.

It does seem rather miraculous that Madoff managed to dupe so many people for so many years by doing nothing more than stealing from Peter to pay Paul. (It is rather fitting that his last name is pronounced “MADEoff ”, as he made off with a whole lotta loot.) It is a measure of how successful he was in luring suckers into his scheme that stories abound about the number of people whose money he refused to take. In other words, you had to audition for the privilege of having Bernie steal from you.

Meanwhile, the scope of Madoff ’s fraud is such that it is on track to surpass the one perpetrated by the snake-oil salesmen at Enron, whic
h, at $60 billion, stands as the biggest in U.S. history.

What happened to earning money?
To delve too much into this sob story would be to indulge in the most unseemly form of schadenfreude (reveling in another’s misfortune), especially since his victims include worthy charities and pension funds that have lost their entire endowments. But I must observe that Madoff would not have been so successful if a bunch of greedy rich folks were not so eager to become even richer. And if the heads of many banks in America, Europe, Asia and the Middle East had been content to earn their money the old-fashioned way, Madoff would’ve been scheming only with millions, not tens of billions of dollars.

This scandal also confirms my abiding suspicion that much of the U.S. financial market is little more than a house of cards, in which croupiers with MBAs continually shuffle decks to determine winners and losers. Let us hope that the sublime fates of Enron’s Ken Lay and Jeff Skilling disabuses all White-collar criminals of their patently fatuous presumption that, because they swindle billions from stock portfolios and pension plans, they are somehow smarter and more honorable than street thugs who steal nickels and dimes (by comparison) from banks and purses.

‘Madoff scheme’
Unfortunately, as P.T. Barnum folklore has it, “Th ere’s a sucker born every minute.” Given the unprecedented level of this fraud, I hereby declare that we should retire Charles Ponzi and henceforth refer to the scheme that bears his name as a “Madoff scheme.” I have no doubt that Madoff will be convicted and sentenced to spend the rest of his life in prison, if he doesn’t opt instead to take the coward’s way out, suicide, instead.

Source: Florida Courier

India hears calls for Satyam bailout

The giant outsourcing company Satyam Computer Services is struggling for survival after its founder, B. Ramalinga Raju, admitted to an enormous fraud, a battle that could put its 53,000 employees out of work. The company's demise may also disrupt operations like billing and computer systems at some of the largest companies in the world.

The scope and seriousness of the situation, coming as the red-hot Indian outsourcing industry starts to cool with the global economy, has prompted analysts and investors to suggest that the government should intervene.

"The question becomes: Will the Indian government step in or will the company be sold either as a whole or in pieces?," analysts from Forrester Research said in a note Friday.

"This is an election year, and there are a lot of considerations" for the government to think about at Satyam, including employees, investors and especially small investors, Sudin Apte, one author of the research report, said in an interview. Satyam might be able to continue until it finds a buyer with another $1 billion in cash, noted another analyst who did not want to be identified because his bank stopped covering Satyam when the fraud was revealed.

Indian officials acted quickly on Friday to try to shore up investor confidence in the company, removing its board members and pledging to appoint ten new directors shortly. The new board will hold a meeting within seven days, said Prem Chand Gupta, Minister for Corporate Affairs.

Satyam faces a liquidity crisis and may not have enough cash on hand to meet basic operating expenses like payroll as soon as this month.

A takeover is unlikely while questions still hang over the company's accounts, many bankers say, and it may be months before those questions are answered.

Regulators in India are delving into how and why Raju was able to fool auditors and investors for several years. India's market regulator, the Securities and Exchange Board of India, began an investigation Thursday into trading of the company's stock and on Friday met with Satyam's chief financial officer Srinivas Vadlamani. The Criminal Investigation Department of the police in the state of Andhra Pradesh, where Satyam is based, joined the investigation on Friday.

The market regulator said Friday that it planned to hold "peer reviews" of auditors' working papers of companies in the main stock indices, a move designed to increase overall confidence in publicly traded Indian companies. Chairman Chandrasekhar Bhaskar Bhave said the regulator needed to reassure investors that Satyam was a "one off phenomena."

Local politicians put pressure on top government officials to step in to save Satyam. YS Rajasekhar Reddy, the chief minister of Satyam's home state of Andhra Pradesh, asked Prime Minister Manmohan Singh in a letter Wednesday to put together a new management team to run the company.

Investors showed little faith in Satyam's chances; its shares fell 41 percent Friday on the Bombay Stock Exchange. Raju said Wednesday that he had fabricated $1 billion worth of cash and bank balances, nearly all of the company's cash assets. Shares fell 78 percent that day. The market was closed Thursday.

So far, the government is balking at the idea of bailing out Satyam.

"This is a corporate governance issue," said Rajeev Jain, a spokesman for the commerce ministry. The government is in "no position" to put cash into the company.

The Congress party government of India, which must hold general elections before a May deadline, has a tenuous hold over the country, and any decisions it makes on Satyam are expected to be challenged by its opposition.

The mood at the company's headquarters was grim. Pankaj Kumar, a software developer who has worked for the company for the past year and a half, said that employees were worried about layoffs. The worst thing was the lack of concrete information about the Satyam's financial position and its future. "There is too much rumor and speculation," he said.

If Satyam goes under, job losses will not be limited to India. As many as 30 percent of Satyam's employees, about 15,900 people, are located outside India, analysts estimate. Some of these employees are Indians on temporary assignments, while others are local citizens. A third group work for a string of companies that Satyam purchased during a buying spree.

Outsourcers like Satyam may once have operated from backrooms in Bangalore, but they have expanded in recent years into continent-spanning giants with offices near their clients and an appetite for international deals. One of Satyam's biggest overseas offices is in Princeton, New Jersey, analysts noted.

Satyam, the fourth-largest outsourcing company in India, went on a European and American buying spree in recent years that stretched from Boston to Belgium. In the first half of 2008 alone, the company struck deals for all or part of four small to mid-sized consultants and back-office firms, including Bridge Strategy Group of Chicago last January for $35 million.

On April 21, Satyam said it had agreed to buy all of the construction equipment company Caterpillar's market research and customer analytics business for $60 million in cash. That same day, Satyam said it would buy S&V Management Consultants, a Belgian supply chain management company with 60 consultants, for $35.5 million.

All of Satyam's businesses may be in peril. "If nothing happens in the next two to three weeks, clients as well as employees will desert the company," Apte of Forrester said.

Source: International Herald Tribune

Why wasn't India's Enron Noticed?

Teams of Indian market regulators are going through the books at Satyam offices in Hyderabad and Bangalore to try to find out just how the multi-million-pound fraud dubbed "India's Enron" was hidden for so long.

One team is examining records at the company's auditors, PriceWaterhouse, as the global chief executive flew out to India. The IT company's disgraced chief executive Ramalinga Raju is expected to be arrested soon.

His confession that he had effectively cooked the company books for several years has shocked the Indian business community and seriously dented confidence in the country's formerly squeaky-clean IT sector.

The interim chief executive Ram Mynampati and a number of the other company heads have been trying to reassure customers and clients that the fraud was a one-man effort and they knew nothing about it.

Mr Mynampati described it as a crisis of "unimaginable proportions".

The company heads have admitted they have enough cash to pay the salaries of its 53,000 employees for December but are unsure if the money can be paid in January.

Mr Mynampati said the main focus was to ensure the business continues. He said he had contacted a hundred of the top company clients who provide 80% of the revenues and had received expressions of support.

However, he also added liquidity was a major problem.

The fraud at India's fourth-largest software company has raised serious questions about the strength of India's corporate governance and the wisdom of investing in emerging markets.

Source: Sky News

Sebi orders probe into Satyam case

The capital market regulator Securities and Exchange Board of India (Sebi) has today formally ordered investigation in the case of Satyam Computers and its team is visiting company’s office in Bangalore tomorrow to inspect the books and records. Sebi has spoken to officials of department of companies affairs also to coordinate the investigation.

Sebi is examining violations under several provisions. The board is investigating fraudulent practices and whether there was insider trading took place or not, any norms circumvented by merchant bankers, take over norms violations under various provisions of Sebi act and the Securities and Contract regulation act.

Regulator has appointed Sunil Kumar A, general manager, Sebi as the Investigating Authority to investigate into the affairs relating to buying, selling or dealing in the shares of Satyam Computer Services and submit a report to the board at the earliest.

Satyam saga has been in the news since last few weeks and Sebi Chairman C B Bhave has said recently that Sebi is looking in to the matter but after today’s confession of fraud by the chairman of Satyam Computers as part of his resignation, the regulator has officially ordered investigations.

The Investigating Authority is also empowered to exercise the powers under Section 11 (3) and 11-C of the Sebi Act, 1992 for the purpose of investigation. Under these sections, regulator enjoys wide ranging powers including seizure of books.

Looking at the urgency in investigating the matter, Sebi has said that the investigation will be done without giving notices to the persons to be investigated.

Sebi’s investigation report will come in due course but experts believe that despite self admission of fraud by Satyam’s outgoing Chairman B Ramlinga Raju, he faces huge penalty and even jail term if authorities use the powers conferred to them. Experts are showing possibilities of slew of law suits against the company also as many private parties may file suits for recovery of their money.

"Sebi can take actions against the company for violation of listing agreements, that companies sign with the exchanges where they are listed, for misrepresentation and false accounting statements. Section 23 of the Securities Contract Regulation (SCR) Act provide for maximum Rs 25 crore penalty and 10 year jail term for wrong doers," said Sandeep Parekh, former executive director (legal), Sebi. He said, despite admission of fraud, authorities have to prove it.

It is not only Indian regulators like the Sebi of department of company affaires are investigating the Satyam's case, the US regulator Securities and Exchange Commission (SEC) is also expected to take actions against the company and the chairman, believe experts. Section 10-B -5 of SEC act provides for such actions. Satyam ADR (American Depository Receipt) issue is listed on NYSE, the US-based stock exchange. Some experts believe that “since the fraud was happening over the years, role of auditors that have certified the annual accounts is under question. This is serious offence in the US also”.

Parekh also said that regulator can investigate role of audit committee of the company consisting of independent directors as the audit committee is formed under listing agreement. Independent directors are supposed to look in to all accounts and raise financial red flag if any.

Source: Business Standard

Satyam’s officials under regulators’ scanner

The management, promoters and independent directors of Satyam Computer Services Ltd could face punitive action, including imprisonment, fines and possibly attachment of personal assets and the company could also be banned from the stock markets in the wake of Wednesday’s confession by the firm’s chairman B. Ramalinga Raju that Satyam overstated its revenue and profits.

Experts also said that the company’s auditor, PricewaterhouseCoopers, could also face action, including a revocation of its licence to practise.

Regulators such as the ministry of corporate affairs (MCA), Institute of Chartered Accountants of India (ICAI), Institute of Company Secretaries of India and the Securities and Exchange Board of India (Sebi) are launching investigations against auditors, company secretaries, the chief financial officer and the chairman, managing director and independent directors of the firm.
While, Sebi has already ordered a probe into the case, MCA is gathering more evidence, including the extent of involvement, if any, of the independent directors.

Corporate lawyers maintain that Raju as well as directors could be booked on several counts.
“First, under the Companies Act, a director is supposed to act in the interest of the company. It is a fiduciary obligation and he can be punished for a breach of this obligation. Also, under the Securities Contract Regulation Act (legislation that checks undesirable securities transactions) an offence can be made out. Even under the Indian Penal Code, there is clear offence of criminal breach of trust and cheating,” said Akil Hirani, managing partner at Mumbai-based law firm Majmudar and Co.

He added that the independent directors would not be spared either. “Company Law does not distinguish between independent and non-independent directors. The authorities will have to investigate the board meeting minutes and records. The onus will be on the directors to show they are innocent,” he said.

Somasekhar Sunderesan, securities law expert and partner at the Mumbai office of law firm J Sagar Associates, said that Raju’s letter admitting misappropriation could make for a clear case of cheating. “Anyone who buys shares, buys them on the basis of the data given by the company. There is a clear assumption that the information furnished is correct. If it is held that the disclosures are false, it is deemed to be a case of cheating.”

For violation of Sebi laws, Raju could face criminal prosecution leading to 10 years imprisonment and a fine of up to Rs25 crore. Sunderesan said Sebi could ban those responsible for fraud from participating in any capital market activities.

The new Companies Bill, pending in Parliament, also lays down that the offence for misleading investors is non-compoundable (which cannot be settled between two parties) and involves imprisonment and penalties depending on the gravity of the situation. Under the existing Companies Act, this is compoundable and penalties are much lower.

The new Bill, unlike the existing law, also has the provisions of class action suit, which investors can collectively file against the promoters.

The legal recourse currently available to shareholders, according to Hirani, is that they can file a civil suit for damages or approach Sebi or MCA for “disgorgement” of profits.

Sunderesan added that Sebi is equipped with regulations to handle this situation, but said that the agency’s enforcement has to improve.

Some legal experts, however, said the independent directors may be spared. “Whole-time directors will certainly be booked while it’s very difficult to prove independent directors had a role to play in it (the fraud),” said Rajan Gupta, partner at FoxMandal Little.
Meanwhile Sebi chairman C.B. Bhave said that Satyam could also face charges in the US since it was listed on the New York Stock Exchange.

Officials at the Securities and Exchange Commission, the stock market regulator in the US, could not be reached for comment.

According to Prem Chand Gupta, minister for corporate affairs, the government was awaiting Satyam’s response to queries raised by the Hyderabad office of the registrar of companies. The company has till Thursday to respond.

The case may also be referred to the serious fraud investigation office (SFIO), Gupta added.
SFIO, which is part of MCA, is a multidisciplinary body to look into various kinds of corporate frauds, has experts from various fields, including corporate law, customs and revenue, banking and accountancy. It has so far filed around 30 cases of corporate frauds since it started functioning in 2003.

“Action can be taken against Satyam’s chartered accountants, chief financial officer, internal auditors, etc. The punishment may range from cancellation of their CA certificates to imposing a lifetime ban on their practice and membership of ICAI,” said Ved Jain, president of ICAI.

Source: Live Mint

Satyam scam: Is the IT dream over?

Satyam might be facing the heat right but the Satyam saga has clearly dealt a blow to the Indian IT dream.

The IT industry represents modern India. They are the ones who have created brand ‘India’ on Wall Street.

But Raju's fraud might change the Indian IT dream forever.
After all, the fourth largest Indian IT company, Satyam has fallen off the cliff, in what unfolds as the most dramatic frauds of recent times.

Now, the clients would think twice before engaging with an Indian IT vendor.
The reason is simple—they would ponder over whether the law of the land can be trusted anymore.

However, Narayan Murthy, the founder of Infosys, said "One apple is bad doesn’t meant everyone is bad."

Well, even as Murthy calls it a one off case, Infosys has already started promising more disclosures to its investors and whatever it takes to keep the clients’ trust.

Also, industry body Nasscom has swung in action, asking companies to switch to the top gear so as to retain their clients.

Som Mittal, President of Nasscom, said,"We are asking companies to make more disclosures on governance issues to their clients."

It’s certainly going to be tough ride for the Indian outsourcing industry with the recessionary pressure of the west on one hand and now, an image crisis.
Meanwhile, the international biggies like IBM and HP will benefit directly, unless the industry leaders go all out to defend their credibility.

Source: NDTV Profit

Satyam: India’s claim to Ponzi fame

The ice is broken. The chairman of a company that was considered one of the torchbearers of India’s new economy has confessed to one of the country’s biggest corporate frauds. Satyam is the company and Ramalinga Raju the chairman, who has now resigned from his post following the revelation of a fraud that might even give scamsters like Bernand Madoff and Charles Ponzi a run for their money.

Satyam’s last month’s gaffe of transferring funds to promoter group companies by buying stakes in the latter already raised a stink. It led us to doubt the faith that investors had put on a company’s management, its independent directors, auditors, consultants and rating agencies. Simply put, it shook the entire chain of belief that investors had on these parties.

Mr. Raju's confession has put nail in the coffin. What is even more glaring is his statement saying that that Rs 50 bn (or 94% of total) cash on Satyam’s books is non-existent, fake!

In his confession statement, Mr. Raju says - "Every attempt to eliminate the (balance sheet) gap failed. As the promoters held a small percentage of equity, the concern was that poor performance would result in a takeover, thereby exposing the gap. It was like riding a tiger, not knowing how to get off without being eaten."

Well, Mr. Raju still survives after getting off this tiger! Every other investor has been eaten. And so have the 50,000 employees of the company who must be wondering where they have been brought into. After all, employment with Satyam might not anymore be an added advantage on their CVs.

He has also admitted that the Maytas deal was "the last attempt to fill the fictitious assets with real ones." He goes on to say, "Once Satyam’s problem was solved, it was hoped that Maytas’ payments can be delayed."

This man has put the whole India growth story at risk by indulging in this fraud. And he is not alone in this. This also brings to light the loopholes in the evaluation systems that boards, auditors, credit rating agencies and bankers apply to judge companies. The role of companies must be to find creative and productive ways to help build societies of confident and independent investors and citizens. Frauds like Satyam and its chairman is definitely not what we want.

For our subscribers, we are holding back our view on Satyam till further clarity regarding its future emerges.

Source: EquityMaster

Satyam Inaids's ENRON

Qoutes from various Satyam Scam stories...

...such as General Electric (GE.N
"Our only aim at this time is to ensure that the business continues" Mynampati said at a media conference on...
...Mitchell said: "Even before the news of these corporate governance issues, there was open market speculation that Satyam was either looking to bulk up through acquisition or that it would be at the core of a merger with rivals of similar scale." It is also possible that the Indian company...
...firm KPMG's forensic practice: "It's got to shake confidence. And it is compounded in my mind by what I already call the fear complex that exists in all global markets." Mr Raju's revelation came after days of...
...Ramadorai to take care of Satyam. "We all have to make effort to see that the company survives, the 53,000 employees survive, their order book also survives. So, I have sought the intervention of the prime minister" said the Andhra Pradesh Chief minister...

Govt scraps Satyam board, to appoint directors

The government on Friday dissolved the board of Satyam Computer Services and said it would appoint new directors as it sought to limit the fall out from India's biggest corporate scandal in memory.

Satyam chairman Ramalinga Raju, who resigned on Wednesday after revealing years of accounting fraud, which has called into question the future of the outsourcing company, will appear before the market regulator on Saturday.

Corporate Affairs Minister Prem Chand Gupta said the government would appoint 10 new members to the Satyam board, which would then meet within seven days. He said there was no move to take over Satyam's management as of now.

"The government is considering appointment of suitable persons as directors of Satyam," Gupta told a news conference in New Delhi. "We are determined to reach the truth but are equally concerned with the fate of employees and other stakeholders."

A Satyam spokeswoman said a statement from the company on the developments was expected later on Friday.

In a bid to ease the worries of rattled investors, the regulator, the Securities and Exchange Board of India, said auditors' certification of corporate results from the December quarter would be peer reviewed.

The government barred Satyam's board from holding its scheduled meeting on Saturday, which was called to consider likely options such as inviting a takeover or strategic investor and appointing an investment banker.

Analysts said Satyam's very existence was threatened by the scandal, which stand-in Chief Executive Ram Mynampati said has pushed the company into a crisis of unimaginable proportions.

Satyam shares slumped to 11.50 rupees (24 U.S. cents), their lowest since March 1998 and a far cry from a 2008 high of 544 rupees, before ending down 40 percent at 23.85 rupees ahead of the board's dissolution.

The company's market value has shrivelled to $330 million, from more than $7 billion just six months ago.


The chief financial officer has also offered to resign after Raju's admission that profit had been overstated for years and that about $1 billion, or 94 percent of the cash and bank balances on Satyam's books at end-September, did not exist.

"There's a big question mark over everything. We don't know what kind of business model they have now," said Amar Ambani, vice-president of research at broker India Infoline.

"Raju's declaration says that at the operating level the margin was 3 percent, so at the net level it must have been a loss, which makes it extremely unviable. They have been borrowing to pay salaries, which means they have no cash at all."

The stock has fallen 87 percent in two trading days, pulling the broader market down. Shares in Satyam's main rivals, Infosys, Tata Consultancy Services and Wipro, rose on expectations they would pick up clients.

Satyam will be cut from India's benchmark stock index, the Bombay Stock Exchange's 30-share Sensex, from Monday.

Analysts said recent hopes that Satyam could survive by being taken over had been dashed, given the scope of the scandal and the potential for big legal losses.

"The largest scandal in India's corporate history calls into question the viability of the company as an independent entity," consultancy Forrester said in a Jan. 8 research note.

"As a result, sourcing and IT executives need to actively review their exposure to the company and their options as a cloud of uncertainty hangs over the company.

"Both clients and employees will desert Satyam as a result of competitive wooing," it said.

Satyam specialises in business software and back-office services for clients including General Electric and Nestle.

National Australia Bank Ltd, Australia's top lender, said it was reviewing a contract with Satyam for system development and support to 2011.


The chairman of Larsen & Toubro, India's top engineering and construction firm, said the uncertainty around Satyam meant L&T had no plans to alter its near-4 percent stake in the outsourcer, which it built up in early January.

"When we invested, our idea was to strike some sort of go-to-market strategy, some sort of strategic alliance, if it was possible," A.M. Naik told CNBC TV18, noting Satyam's share price was about 188 rupees before Raju's resignation bombshell, far higher than the price at which L&T had bought its stake.

Naik did not rule out an alliance with Satyam once there was clarity on its losses and liabilities, including any from law suits. L&T runs a mid-sized outsourcing unit called L&T Infotech.

Several securities fraud class action lawsuits have already been filed in the U.S. on behalf of investors who bought Satyam American Depository Receipts (ADRs) in the last five years.

Source: Reuters

Satyam's Raju untraceable, SEBI team in Hyderabad

Even as a Securities and Exchange Board of India (SEBI) team reaches Hyderabad to investigate Satyam Computers' Rs 7000 crore fraud, it
s disgraced chief, B Ramalinga Raju remains untraceable.

After admitting to committing a Rs 7,000 crore fraud on Wednesday, Raju faces arrest and could serve as many as 7-10 years in jail.

Amid mounting speculation over his whereabouts, Satyam management has said that it has no idea where Raju is.

Sources in the Hyderabad police have said that Raju had left for Texas on Wednesday morning from Hyderabad airport. Raju has not been seen in public ever since his confession, but TV reports suggest that he could have left for Texas.

There is a petition pending over his Maytas deal for which British Telecom's Solutions firm - U-paid had demanded presence of Raju and senior directors of Satyam for questioning by its lawyers.

According to another TV report, Raju could also have left for Dubai, however, there is no confirmation. Satyam's former chairman is not reachable on his mobile phone.

Ramalinga Raju on Wednesday admitted to a Rs 7,000-crore fraud in the Hyderabad-based company and revealed that the balance sheet of Satyam had been inflated and that he would subject himself to the laws of the land.

On its part, the Hyderabad police said they would take action against him only if a shareholder or the regulator lodges a complaint. Raju had written a letter to the board giving details of the company's balance sheet which has serious financial irregularities including inflated cash balances running into several crores of rupees.

The 54-year-old US MBA Raju's letter of guilt and resignation to the Satyam board and Sebi on Wednesday morning sledge-hammered India Inc, dumbfounded regulators, pummelled the company's stock, knocked the bottom out of the market, and cast a long shadow over industry in general and the IT sector in particular.

Satyam stocks took a serious beating yesterday with this latest news that has shocked investors. The stocks plunged by almost 80 percent at Rs 39 per share, at day close.

Ram Myanpati is acting as interim CEO of the company, who after expressing ``shock'', swung into damage control mode.


Media dub Satyam scandal 'India's Enron'

A billion-dollar false accounting scandal at one of the biggest outsourcing firms dominated the country's media on Thursday, with newspap
ers likening it to that at US energy giant Enron.

The Economic Times described Satyam Computer Services founder and chairman B. Ramalinga Raju's admission that accounts and assets had been falsified and profits inflated as "the biggest fraud in India's corporate history."

"The shame and scandal has stunned India Inc., and left lakhs (tens of thousands) of investors and 53,000 staffers out in the cold," it said.

The Hindu said the Satyam scandal was "shocking beyond belief"; The Asian Age called it "the Great Dot Con"; while the Times of India said it was ironic that the firm's name means "truth" in Sanskrit.

At the Business Standard, Raju's revelations of cooking the books to the tune of more than Rs 5000 crore(one billion dollars) in its September-end balance sheet were described as "India's Enron".

"The scale of the fraud and manipulation in the financial statements of the company is mind-boggling", one commentator wrote, calling it "reminiscent of the Enron-Andersen days".

Enron collapsed in 2001 after revelations that bosses hid company losses and hyped the stock's value while selling their own shares on the sly, leading to prosecutions.

Auditors Arthur Andersen were also convicted after allegations that employees shredded documents to hide evidence relating to the scandal.

Raju said in his resignation statement that none of the other board members was aware of the firm's actual financial situation and that no-one had profited from the inflated results.

Questions were asked in the media about the role of Satyam auditors PriceWaterhouseCoopers as well as the robustness of corporate governance and financial regulation in India.

Others feared for the effect on foreign investment, which is already being squeezed by the global economic slowdown, and India's reputation as a place to do business.

The Indian Express said the timing "could not have been worse", with a weak stock market, a reluctance on the part of domestic investors to take risks and their foreign counterparts pulling out of emerging markets.

"This will only exacerbate that problem, just when the Indian economy needs momentum to grow in the opposite direction," it said in an editorial.

The revelations were also "simply catastrophic" given the potential shift in attitudes towards outsourcing as US president-elect Barack Obama prepares to take office, it added.

Source: ET

India’s Satyam chief resigns over fraud

The chairman of India's embattled Satyam Computer Services resigned Wednesday and said the company's profits had been inflated over the last several years, sending the stock down 71 per cent.

The shocking revelation comes after India's fourth-largest outsourcer's botched attempt last month to buy two construction firms in which the company's founders held stakes and key customer World Bank dropping its ties with the outsourcing company.

"The gap in the balance sheet has arisen purely on account of inflated profits over a period of last several years," Satyam Chairman Ramalinga Raju said in a statement to stock exchanges on Wednesday.

Satyam's woes make it one of India's most high-profile company scandals in recent years. The comments from Satyam sent Indian equity markets in a tailspin, with Bombay's main benchmark index falling 3.9 per cent.

Satyam, which specialises in business software and back-office services for clients such as General Electric, and Nestle, was due to hold a board meeting on January 10 to consider a buyback following a rash of broker downgrades even after the acquisitions were called off.

"I think there is no future for this stock. This case for India is similar to what happened to Enron in the US," said Jigar Shah, senior vice-president at Kim Eng Securities.
"It will not stop at Satyam. Many more companies will come into scrutiny like that. There is a strong possibility investments in India will be affected."

Source: xpress4me