SCAMSTERS INC.

Satyam Computer Services Ltd. Chairman Ramalinga Raju resigned after saying he falsified earnings and assets, prompting a collapse in the stock of India’s fourth- largest software services provider.

Raju unsuccessfully tried to sell two companies to Satyam last month in a final attempt to plug 50.4 billion rupees ($1.04 billion) of “fictitious” cash on the company’s balance sheet, he wrote in a letter to Hyderabad-based Satyam’s board today. Profits have been inflated for “several years,” he said.

Satyam plunged a record 78 percent, dragging down India’s benchmark index in a scandal described as “horrifying” by regulator C.B. Bhave. Raju’s reign unraveled in the past month as a shareholder revolt blocked the asset purchases, the World Bank banned Satyam from bidding for contracts and four directors quit.

“This is a black day for India, the software sector and corporate governance claims,” Arun Kejriwal, founder of Kejriwal Research & Investment Services, said in Mumbai. “If at all there’s an event that could be the biggest setback for corporate India, it is this.”

Satyam, which means “truth” in Sanskrit, slumped 138.7 rupees to 40.25 rupees. Bombay Stock Exchange spokesman Kalyan Bose said the bourse will examine whether to remove Satyam from the Sensitive Index, which tumbled 7.3 percent. About 473 million shares traded, more than 27 times the three-month average.

‘Deep Shock’

“We’re in a deep state of shock by what’s been announced and we’re fairly happy that we sold when we did,” said Greg Kuhnert, a fund manager at Investec Asset Management Ltd. in London, which manages about $10 billion and sold its 0.15 percent stake in Satyam last month. “When we look at further investments in the country, we’ll have to get out a magnifying glass and really examine every bit very closely.”

Satyam maintains computer networks and provides outsourcing services for clients including Citigroup Inc., Nissan Motor Co. and Qantas Airways Ltd. The company employs about 53,000 people in Bangalore, Chennai and Hyderabad and competes with Infosys Technologies Ltd., Tata Consultancy Services Ltd. and Wipro Ltd.

“This quarter will be tumultuous for us,” interim Chief Executive Officer Ram Mynampati said in an e-mailed statement. “Rumors will abound and it would be fair to assume that competition will try to leverage it to their advantage.”

Infosys, India’s second-largest software exporter, called the incident “deplorable.”

‘Non-Existent’

Of Satyam’s reported cash and bank balances of 53.61 billion rupees on Sept. 30, 50.4 billion rupees was non-existent, Raju said in the letter sent to the Bombay Stock Exchange.

Operating margin in the quarter ended Sept. 30 was 3 percent of revenue, instead of the reported 24 percent, Raju said. The company’s revenue was 21 billion rupees, 22 percent less than the inflated figure of 27 billion rupees that had been reported.

Raju arranged 12.3 billion rupees “to keep operations going” at Satyam over the last two years by pledging the founders’ shares and raising funds from other sources, he said.

“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,” Raju said. “It was like riding a tiger, not knowing how to get off without being eaten.”

Rama Raju, the outgoing chairman’s younger brother and Satyam’s managing director, also resigned, the company said.

The founders’ concern was that a poor performance, combined with the fact they held a small stake in the company, would make Satyam an easy target for a takeover, exposing the inflated figures, he said.

Raju’s attempts to “keep the wheel moving” at Satyam was finally derailed as lenders sold most of the pledged shares because of margin calls, he said.

Satyam’s auditors PricewaterhouseCoopers said in an e-mail it will issue a statement later.

Scrapped Takeover

Raju scrapped the planned acquisition of Maytas Properties Ltd. and Maytas Infra Ltd. last month, less than 12 hours after announcing it, after the company’s ADRs plunged.

Separately, the World Bank Dec. 23 declared India’s fourth- biggest software-services provider ineligible for contracts for eight years from September, alleging “improper” benefits were given to the bank’s employees.

DSP Merrill Lynch Ltd. said it ended its contract with Satyam yesterday. The software provider had on Dec. 27 named Merrill as an adviser for helping it on strategic “options” including a possible stake sale.

Raju, who won the Ernst & Young Entrepreneur of the Year award in 2007, has an MBA from Ohio University and is an alumnus of Harvard Business School, according to Satyam’s Web site.

Satyam in September was awarded the Golden Peacock Global Award for Excellence in Corporate Governance by the London-based World Council for Corporate Governance.

“We’re planning to withdraw the branding,” said Manoj Raut, a New Delhi-based spokesman at the Golden Peacock Awards Secretariat. “The council will be meeting shortly to check the legal perspectives and how to go about it.”

“This company had a five-star independent board and it had a leading auditor and still it managed the con,” said Tarun Sisodia, a Mumbai-based analyst with Anand Rathi Securities Ltd. “So the question is why only Satyam, why not every other company.”

Source: Bloomberg

Satyam Computer Services, a leading Indian outsourcing company that serves more than a third of Fortune 500 companies, massively inflated its earnings and assets for years, the chairman and co-founder said Wednesday, roiling Indian stock markets and throwing the entire industry into turmoil.

Ramalinga Raju resigned after revealing that he had systematically falsified the company’s accounts as it expanded from a handful of employees into a back office giant with a workforce of 53,000 and operations in 66 countries.

Mr. Raju said Wednesday that 50.4 billion rupees, or $1.04 billion, of the 53.6 billion rupees in cash and bank loans the company listed in assets at the end of its second quarter that ended in September were nonexistent.

Revenues for the quarter ending September 30 were 20 percent lower than the 27 billion rupees reported, and the company’s operating margin for the quarter was a fraction of what it declared, he said in a letter to the Bombay stock exchange authorities.

Satyam serves as the back office for some of the largest banks, manufacturers, health care and media companies in the world, handling everything from computer systems to customer service. Clients have included General Electric, General Motors, Nestle and the United States government. In some cases, Satyam is even responsible for clients’ finances and accounting.

The revelations will spark a major shake-up in India’s outsourcing industry, analysts say, and may force many of the world’s largest companies to investigate and completely revamp their back offices. “This development is going to have a major impact on Satyam’s business with its clients,” said analysts with Religare Hichens Harrison on Wednesday. In the short term “we will see lot of Satyam’s clients migrating to competition like Infosys, TCS and Wipro,” they said. Satyam is the fourth largest outsourcing firm after the three named.

In a four-and-a-half page statement to the Bombay stock exchange, Mr. Raju described a small discrepancy that grew beyond his control. “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,” he said. “It was like riding a tiger, not knowing how to get off without being eaten,” he wrote.

Mr. Raju said he had attempted and failed to bridge the gap, including an attempt in December to buy two construction firms in which the company’s founders held stakes. Speaking of a “deep regret” and a “tremendous burden,” Mr. Raju said that neither he nor co-founder and managing director B. Rama Raju had “taken one rupee/dollar from the company.” He said the board had no knowledge of the situation, nor did his or the managing director’s families.

The size and scope of the fraud raises serious questions about regulatory oversight in India and beyond. In addition to a listing in India, Satyam has been listed on the New York Stock Exchange since 2001, and on Euronext since January of 2008. The company has been audited by PricewaterhouseCoopers since its listing on the New York Stock exchange.

Satyam has been under close scrutiny in recent months, after an October report that the company had been banned from World Bank contracts for installing spy software on some World Bank computers. Satyam denied the allegation but in December, the World Bank confirmed without elaboration on the cause that Satyam had been banned. Also in December, Satyam’s investors revolted after the company proposed buying two firms with ties to Mr. Raju’s sons.

On December 30, analysts with Forrester Research warned that corporations that rely on Satyam might ultimately need to stop doing business with the company. “Firms should take the initial steps of reviewing the exit clauses in their current Satyam contracts,” in case management or direction of the company changed, Forrester said.

The scandal raised questions over accounting standards in India as a whole, as observers asked themselves whether similar problems might lie buried elsewhere. The risk premium for Indian companies will rise in investors’ eyes, said Nilesh Jasani, India strategist at Credit Suisse.

R.K. Gupta, managing director at Taurus Asset Management in New Delhi, told Reuters: “If a company’s chairman himself says they built fictitious assets, who do you believe here?” The fraud has “put a question mark on the entire corporate governance system in India,” he said.

News of the scandal -- quickly compared to the collapse of Enron -- sent jitters through the Indian stock market, sending the benchmark Sensex index down more than 5 percent. Shares in Satyam fell more than 70 percent.

Just a few months ago, Mr. Raju was trying to convince investors that the company was sound. In October, he surprised analysts with better than expected results, saying he was “pleased” that the company had “achieved this in a challenging global macroeconomic environment, and amidst the volatile currency scenario that became reality.”

But by late December, it seems he had little support from board members or investors and four of the company’s directors resigned in recent weeks. Satyam recently retained Merrill Lynch for strategic advice, a move that is generally a precursor to a sale.

Mr. Raju said in his statement that he “sincerely apologized” to shareholders and Satyam employees and asked them to stand by the company. “I am now prepared to subject myself to the laws of the land and face consequences thereof,” he said.

Heather Timmons reported from New Delhi, and Bettina Wassener from Hong Kong.

Source: NYT

At a time when India software Inc is waking up to perhaps the biggest corporate scam the country has seen, industry leaders such as N R Narayanamurthy who founded country’s second biggest tech firm Infosys, described developments at Satyam as shocking, painful and a good warning for other companies in the sector.

The Satyam episode is a good warning signal for all managements, said Mr Narayanamurthy, the non-executive chairman of Infosys and one of the strongest votaries of corporate governance in the country. Speaking to ET , Mr Murthy said, it is time for authorities to step in with appropriate action.

Following is Mr Murthy’s unedited views on the subject.

I am shocked and painfully dismayed at what has happened at an important software company in India. It is a total failure of governance. I only hope that relevant authorities get to the bottom of this and take appropriate action.

Source:TOI

Adding insult to injury, Satyam founder and chairman B Ramalinga Raju has admitted that the company had been misappropriating its accounts for several years, opening up a Pandora's box of loopholes and miscalculations in corporate governance in Indian IT.


Although this paints a gloomy picture, captains of the IT industry seek to allay fears of a confidence betrayal in the minds of the countless investors, stockbrokers, businessmen and countless households, who have pinned their entire future onto these corporates.

NASSCOM may consider banning Satyam Computer Services from its membership. "The entire incident came us a shock to us. This kind of a fiasco is an unprecedented one in the history of Nasscom. Considering the magnitude and implications of the incident, we can even look at banning the company from Nasscom," says Ganesh Natarajan, Chairman, Nasscom. In fact, Ramalinga Raju had served as the chairman of Nasscom in 2006-07.

"It is a bad day for corporate India and IT industry. Investors will be very worried and this is critical time for the company and thus management has to be changed for company to protect careers of their employees," says Mohandas Pai, Head, HR Administration, Infosys Technologies. He feels that the auditing process should get more rigorous and that all companies should make sure that bank balance confirmation goes directly to auditors. Pai thinks that the outsourcing clients will take a more cautious approach now and people having large exposure to outsourcing will consolidate and work to minimise the risk.

Suresh Senapathy, CFO, Wipro, assures that Satyam's case is isolated and not associated with any industry. He said Satyam would face both civil and criminal prosecution in the U.S. He feels that as shareholders are more vulnerable, clients will assess risks now.

CP Gurnani, President, International Operations, Tech Mahindra feels that the Indian IT industry should call it a crisis situation. However, there need to be some more announcements for employees and shareholders of Satyam. He added that if anybody acquires this company, he will only be acquiring lawsuits now.

"There is definitely a need for deeper and harder look at what we have been calling corporate governance over the last few years. We have to also take a deep look into what allowed this ill-governance to continue for so long," says Rajeev Chandrashekar, President, Federation of Indian Chambers of Commerce and Industry FICCI.

"It is a complex issue. We have to also see what has been the role of board of directors, auditors and company secretary. So, accordingly once the things are clear then the proper action would be taken," said, PC Gupta, Minister of Corporate Affairs in a statement.

"The fact that the board of directors got conned is itself not a very good thing. I think independent directors should have the capacity to understand the business," Gupta added.

Source: siliconindia.com

he alluring bait that has been cast to find potential suitors for the troubled Satyam Computer Services is extremely tempting
to rival software firms and financial investors, but none of them is seen in any great hurry to bite.

The attractions of India’s fourth-largest software exporter are many: marquee clients such as General Electric and Nestle, over 50,000 staff with valuable technical skills and a market value of just Rs 11,200 crore, a little over 1.25 times its sales of Rs 8,130 crore for the 12 months ended March 2008.

This has meant that the market is abuzz with talk of potential suitors — the list includes multinational firms, private equity (PE) funds, Indian firms such as Tech Mahindra and HCL Technologies, and even an alliance of companies.

“All scenarios are possible as Satyam is an attractive asset. The point is that Satyam may not be able to continue as it is, given the governance issues. The buyer could be an India- centric company, PE players or multinationals,” said Avinash Vashistha, CEO of Tholons, a Bangalore based IT advisory firm. But, for now, discretion is the better part of valour, as Satyam grapples with issues which have dealt a blow to its credibility following a failed bid to buy two companies run by the sons of its founder B Ramalinga Raju for $1.6 billion.

“Any suitor will have to look at it in entirety – the valuation, the cash on the books, the promoters’ exit and the litigation involving Upaid,” said SBICAP Securities research head Anil Advani.

Four of the company’s six independent directors have resigned after the ill-fated acquisition attempt on December 16, the shareholding of the promoters has fallen after some of the shares they pledged to lenders were sold, the cash in the company’s books is in doubt and Satyam is battling a US lawsuit by a former customer alleging fraud and forgery and claiming damages of over $1 billion.

Investment banking sources say Satyam’s merger with a large IT company such as HCL Technologies or Cognizant looks more feasible than an outright acquisition by a multinational IT firm.

A merger is seen as making more sense for companies such like HCL, Cognizant, or even Tech Mahindra, as any of these can use the opportunity to enter the top league of Indian IT services exporters which now has TCS, Infosys Technologies and Wipro leading its ranks.

“It will make the entity (HCL-Satyam) the strongest SAP (business software) player in India,’’ said Apurva Shah, IT analyst at broking house Prabhudas Leeladhar. A Satyam-HCL combine will have strong expertise in business software space and could challenge the top three players whose strength is the development and maintenance of applications, said Nikhil Rajpal, principal at outsourcing advisory Everest Group. Satyam gets about 45% of its revenues from enterprise software while for HCL, which recently acquired Axon, a UK-based specialist in SAP business software, it is 30%.

A HCL Technologies representative reacted to the prospect of a deal with Satyam by saying “We don’t comment on market speculation.”

Another company which could see a Satyam buy as great for its business is Tech Mahindra. A combination with Satyam could help the telecom software company – heavily dependent on Britain’s BT Group Plc now – spread its risk and leapfrog into the big league. “Tech Mahindra is a focused telecom player that will need to diversify into other domains sooner or later. As a strong generic offshore player, any deal with Satyam would make strategic sense for Tech Mahindra,” said Mr Shah of Prabhudas Leeladhar.

Source: ET

A word to the wise for Twitter users: Beware of direct messages asking that you click a link and enter your login info. The official Twitter blog has details about the new phishing scam, which reached critical mass over the weekend and tries to lure users into entering their user IDs and passwords into an authentic-looking Twitter login page.

Here's how it works: You'll get a DM (direct message) from one of your Twitter followers that says something along the lines of, "hey! check out this funny blog about you…", plus a link to a Web page.

Click the link, and you'll end up at a site that looks a lot like the standard Twitter login page—although it's not. Take a closer look, and you'll see that the URL in your browser's address bar reads "http://twitter.access-logins.com/login"—or another domain besides "twitter.com." (BetaNews reports that a variety of different phishing URLs have cropped up in the past few days.)

If the scamsters manage to scoop up your Twitter login into, they'll use it to send more fraudulent DMs from your account—not good.

Think you may have already fallen for the phishing scam? Twitter suggests resetting your password; click this link, and Twitter will send a link to the e-mail address associated with your account.

Meanwhile, beware another new phishing scam making the rounds on Twitter: A phony offer for a free iPhone (check out VentureBeat for the details).

Update: More Twitter craziness—turns out 33 high-profile Twitter accounts have been hacked, including those of Barack Obama and Rick Sanchez. The accounts (which have been restored to their rightful owners) were "compromised by an individual who hacked into some of the tools our support team uses," according to Twitter, adding that the security breach is unrelated to this weekend's phishing attacks.

When news papers and channels reported irregularities and the possibility of a scam in the allotment of 5,010 houses in the recent DDA mega-housing scheme, the Delhi Police swung into action on Saturday, with sources claiming the role of specific property dealers had hit their radar with the investigators also looking into the possible involvement of DDA functionaries as well as officials of a leading bank.

The police is expecting to get leads from the questioning a chartered accountant, who is believed to have facilitated the loans from banks and for fictitious applicants some of whom got the flats, sources said.

The CA, whose name is being withheld by this newspaper due to the sensitive nature of investigation, works for a Chandigarh-based finance company. He was questioned for more than five hours by crime branch sleuths on Saturday. The CA has provided a list of all those he `helped' in applying for the DDA scheme, sources in the Delhi police said.

"He told us that his company was outsourced the job by a Chandigarh-based firm and had facilitated loans from 12 branches of different banks in Delhi. He claimed to have helped over 1,000 people in filing the application forms," a senior police source told TOI.

Police said that they are examining the documents furnished by him. The Chandigarh-based finance company mentioned by the CA, is also being contacted, police claimed.

Meanwhile, a team of crime branch officers also met the complainant Udit Raj, head the All India Confederation of SC/ST Organisations, who had filed a specific complaint about a nexus of realtors and officials working to corner houses reserved for SCs and STs by filing hoax applications.

Udit Raj, who was examined in detail by the cops, is believed to have provided leads. "He claimed to have written to 150 persons of ST category, whose names were allegedly used to apply for the scheme. We have asked for the details of all the 150 individuals who he contacted," said a senior police officer.

The Economic Offences Wing (EOW) of the Delhi Police, which is probing the matter, has also written to DDA housing authorities and asked them to furnish information regarding all those who had applied under SC/ST categories along with all those who were finally allotted the flats in these categories.

"We have also asked DDA to furnish information regarding those who have applied through a leading bank in this category as it was alleged that some officials of the bank were also involved. However, it will be too early to comment on the entire nature and dimensions of fraud as it can be a single case also," said a police officer.

Being a weekend when the agency remains closed, DDA spokesperson could not confirm whether the authority had received any intimation from the police but said it would hold a press conference on Monday to address the issue.

Source: TOI