SATYAM

THE HIDDEN TRUTH

DINESH DALMIA RAMALINGA RAJU

(Satyam Computers)

V.CHANDRA (DSQ Softwares) SEKARAN (Pentamedia Group)

Byrraju Ramalinga Raju is the biggest fraudster. In the Indian software Industry. But he is not the first. Dinesh Dalmia, Vice-Chairman, DSQ software, has been in jail for Two years. Pentamedia company promoter V.Chandrasekaran was found to be in cahoots with tainted broker KETAN PAREKH in rigging up share prices.

THE TRUTH SERUM TRAILS

 Satyams

Rs 7,000-crore duplicity.

 Scale of monies and skullduggery involved and the worrying implication for Indias IT sector.  The Satyam saga puts the entire corporate food chain into question from directors and auditors to analysts and the media.  Is The Satyam scandal just about a promoter manipulating the financial statements of his company to show a superior performance?

Satyam Fraud: More than accounting skullduggery

Lawyers have already expressed doubts over whether the statement can actually Be deemed a confession and enough to implicate MR. Raju. Indeed, they say that it Is a very well drafted document designed to draw attention to the hole in the Finances without implicating himself anywhere for any act of commission.

Deflecting attention ??
Nowhere has he said that he was responsible for this nor has he pointed his finger at anyone else. Of course, as the chairman, the buck stops with him but that is not the same as saying I did it.  He has tried to project himself as the saviour by pointing out how he arranged Rs 1,230 crore for the company. The scored event that raised doubts is the carefully orchestrated arrest of Mr Raju.

EVENT:
 The

founder and Chairman of Satyam Computers Services, the indian outsourcing company, confessed to fraudulently inflating profits, overstating assets and suppressing liabilities over several years.

DETAILS OF THE FRAUD

Bank balances, interest income and debtors were overstated to the extent of Rs 50.4bn, Rs 3.76bn and Rs 4.9bn respectively. Liabilities were understated by Rs 12.3bn. The adjusted book value works out to Rs 18.4 per share against a reported book value of Rs 124.3 per share and the pre-fraud revelation stock market price of Rs 178.953 per share.

Impact on Indias IT (outsourcing) industry

The Satyam scandal will undoubtedly mar Indias reputation as a reliable provider of IT services to some extent. It is highly likely that other Indian outsourcing companies will be subject to greater degree of scurtiny by regulators, investors and customers.

Impact on stock market

News of what is possibly the countrys biggest corporate fraud, sent the indices tumbling.. Companies perceived to have poor corporate governance standards were most affected.

The Man Who forced Rajus Hand

JUST WHY DID CHAIRMAN RAMALINGA RAJU TAKE THE outrageous decision of Emptying Satyam Computer Services coffers Into his familys pockets??
Simon Joyce, the CEO of london-based mobile payments technology firm upaid, May be that compelling reason. Upaid and satyam are battling each other on three legal fronts. Two suits, in which Satyam faces accusations of Fraud, breach of contract And forgery, have been in texas state and federal courts since 2007. Upaid is expected to file a damages report that will enumerate the exact Numbers in Feb 2009, even as satyam is all set to go to trial in june next year. The outcome of the case may well establish some logic behind Rajus bizzare move.

Maytas Properties and Maytas Infrastructure

FAILED ACQUISITION ATTEMPT

Satyam Calls Off The Deals Investors Felt Betrayed Public relations

SATYAM SCAM

GROWTH OVER MORALS

Satyam-and one suspects many other companiesstarted chasing growth at the expense of Morals. Books were cooked. Raju described it best in his confession to the board: it was like riding a tiger,

knowing how to get off without being eaten.

WHY SOFTWARE COMPANIES FAIL

 Entrepreneur- promoters in software services have failed to rise above self-interest and build sustainable businesses.  Often such companies are limited to the vision of one person. It, therefore, becomes tough for them to retain top grade managerial talent. Thats why a$200 million company often doesnt get $1billion.

Their attitude was: if I make $10, I will put $7 in the business and $3 in my pocket.  Raju and the board mismanaged the $1.6 billion investment decision process, even though it was rolled back.  Even if infrastructure was to be the next hot, growth area for SATYAM, how did it arrive at Maytas Infrastructure as the Investment vehicle.

IS IT AN ACT OF CONSCIENCE OR IS RAJU Just securing his sons future?

A person who has been an idol has let down most who Idolized him. The most obvious of questions has still not been answered. Is it so easy to show Rs 5,000 crore of nonexistent bank balances in balance sheets?  why did the disclosure come at this stage?? Who benefits from them?? These disclosures have a direct and material benefits to the family, including his sons who control Maytas and Rama Raju, Satyams MD, among others..

There are many other questions that need Answers:

Should we believe that the bank balances never existed? Independent director M.Rammohan Rao, the dean of ISB, chairs Satyams audit committee. How can he feign ignorance and get stunned by the disclosures?? Who valued the Maytas Properties land bank?? With the benefits of hindsight, isnt it true that the botched acquisition attempt of Matyas Infra would have benefited Satyam Shareholders??

THE RUBBER STAMP CULTURE MUST BE ERASED..

WHY MALPRACTICES HAPPEN??

Audit firms now have limited liabilities as opposed to unlimited liabilities. Financial statements and disclosure are not as credible as they used to be. Corporate crimes are still carried out at less severe level.

NOW WHAT
THERE ARE MORE QUESTIONS than answers in the wake of RAMALINGA RAJUS shocking confession:
 Did Satyam really have the Rs5,000 crore cash

Reserve or did it not??

Raju may prove to be a liar even in his guilt. Contrary to his claim that he inflated accounts and the cash reserve never existed, the government is investigating the possibility that the money was there and was siphoned off.

 And how much cash does Satyam urgently need?

It has to pay creditors, including health insurance for overseas employees and, of course, it has to pay salaries. Just one months salary for company of Satyams size would be $100-120 million.

 Will Satyams customers stay or leave??

On jan 16, US-based state firm Insurance, one of Satyams 649 clients, terminated its contract, estimated $50 million. Inside Satyam, heads of verticals are calling clients with offers to move to rival companies with their full teams.

 Will Satyam race more lawsuits?

Apart from the billion-dollar upaid lawsuit, Satyam potentially faces an avalanche of class-action lawsuits in the US. Almost a dozen US law firms have already filed class-action law suits in US courts on behalf of investors.

 Will there be large job losses?

YES.
the logic is simple. Going by Satyams headcount of53,000 (which experts say would be harder to fudge given provident fund payments), Satyams revenue per employee is comparable to peers. For example, Satyams revenue per employee for FY)* was about Rs. 15.5 lakh as compared to infosys Rs 18.3 lakh and HCL Technologies Rs 15.04lakh.


What happens now to price Waterhouse?

if gross negligence or connivance is established by the ICAI panel, it could have large have greater consequences.

Corruption hits as hard as terror, as the SATYAM scam shows:

 If mumbai 26/11 threatened the physical wellbeing of Indian citizens, the Satyam and scam threaten the economics wellbeing of Indians.  look closely and you will find the same trail of corruption behind both, with just one difference.  In Transparency Internationals global ranking of corruption last year, India ranked 85th. In India, the combined wealth pf the two Ambani brothers for example, had crossed the hundred-billion-dollar mark. How come no financial journalist here investigates the source of such wealth?

How come in these matters we fight shy of ideas of transparency and accountability? However, should not at least a minuscule section of the media be giving us some basic details? Does one have to be marxist to ask these questions? Is a governmental bailout plan for the rich and the greedy a socialist idea?

In particulars, the pink press, which is supposed to be reporting from the financial ringside, seemed to have little clue that even as it was salivating at and being complicit in the successes of the wealthmakers, it was but a sniffing distance away from a Tsunami-size fraud

WE ARE NOT AMONGST THEM.

PRESENTED BY: PIYUSH KHILWANI HIMANSHI ARORA SHUBHI AGGARWAL NEHA JAIN AKANKSHA BANSAL

(A)Satyam-Saga

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Black Faces of Indian IT

Dinesh Dalmia (DSQ Software)

V Chandrashekharan (Pentamedia group)

Ramalinga Raju (Satyam)

Byrraju Ramalinga Raju is the biggest fraudster in the Indian software industry, but he is not the first. Dinesh Dalmia, Vice-Chairman, DSQ Software, has been in jail for two years. Pentamedia company promoter V Chandrasekaran was found to be in cahoots with tainted broker Ketan Parekh in rigging up share prices.
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Satyam A Snapshot
Founded in 1987 Listed on NYSE, NSE, BSE, Euronext Controversies Upaid Lawsuit, Worldbank, Maytas acquisition
Major Satyam Clients

"..we would like to assure Satyams customers that our immediate priority is to ensure sustainability of services with minimal disruption.." - Deepak Parekh, Board Member Satyam

Kiran Karnik

A S Murthy

Deepak Parekh

C Achuthan

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Satyam Current News

Satyam Loses 46 Customers to Rivals (Economic Times Reports) Applied Materials Inc., Nissan Motor Co., Sony Corp., State Farm Mutual Automobile Insurance Co. to name a few - Dt. 17-Mar-09

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Slippery Slope to Disaster

December08 brought news of pending litigation by a former client, online mobile-payments service Upaid Systems which filed a case of intellectual fraud and forgery against Satyam in 2007

World Bank banned Satyam from doing any of its work after it found Satyam employees had hacked into its system and gained access to sensitive information It also did not renew their five-year contract

On Dec. 16, when Raju announced the company would spend $1.6 billion to buy Maytas only to reverse the decision a few hours later under shareholder pressure Satyam ADRs lost 50% of their value overnight
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Satyam : Dec-2008 to Jan-2009

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Satyams secret back office Maytas

riding a Tiger, not knowing how to get off

 Satyam to buy Maytas Prop ($1.3 bn) & 51% stake in Maytas Infra ($300 mn)  Deal to be financed by Satyams surplus cash  Satyams share prices fell reflecting share holders disbelief.  Valuation of Maytas turned out to be fraudulent

 Raju and family own up to 35% stakes in Maytas.  Raju was siphoning the money from Satyam to Maytas since last 6 years. With Satyam in deep cash crunch, Raju wanted to buy Maytas to cover up Satyams inflated cash.  Last attempt to fill the fictitious assets with real ones failed. Raju nailed a hole in a sinking ship Satyam.

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What happened next???

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Rajus Confession on 7th Jan09

The Balance Sheet carries as of September, 30, 2008: Inflated Cash and Bank balance of Rs. 5,040 Crores Accrued interest of Rs. 376 Crores which is non-existent Understated liability of Rs. 1,230 Crores Over stated debtors position of Rs. 490 crores For the September Q2, reported a revenue of Rs. 2700 Crores and an operating margin of Rs. 649 Crores as against the actual revenues of Rs. 2,112 Crores and an actual operating margin of Rs.61 Crores ( 3% of revenues). This has resulted in artificial cash & bank balances going up by Rs. 588 Crores in Q2 alone.

Immediate Market Reaction: Sensex stock index dropped 7.3% Satyam shares fell nearly 78%

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Satyam Vs Enron Vs
Satyam
Malpractices amounting worth USD 1.3 billion Masterminded by its founder-owner R Raju (CEO) and his brother SENSEX tanked 7.2 % when Raju announced of the fraud Government appointed new auditors KPMG and Deloitte Government guaranteed safety of jobs for all 53,000 employees

Enron
Accounting books were manipulated in conspiracy with its auditor Arthur Andersen NYSE tanked 0.9% when Enron filed for bankruptcy Government created Sarbanes Oxley Act US S.E.C. revoked CPA license of Arthur Andersen

Worldcom
Scott Sullivan (CFO), David Myers and Buford Buddy Yates (Director of General Accounting) used fraudulent accounting methods to mask its declining earnings Arthur Andersen withdrew its audit opinion for 2001 Government created Sarbanes Oxley Act

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Experts Reaction
shocking, painful & a good warning for other companies in the sector.

We reaffirm our commitment that well focus on creating value for our customers with the same passion that we have demonstrated in the past while maintaining the highest ethical and governance standards.

Comments from Wharton Professors: "If there were one or two more such accounting scandals in the next six months, it would make international investors more wary. Foreign investors will look a little more askance at accounting data from India. And that may not be a bad thing. "When you have companies that are ostensibly growing their top lines at 30%, 40% or 50%, it is possible to paper over things. When growth rates slow down, you are unable to hide the financial reality of how much cash you actually have. It is possible that during this slowdown period, more scandals will come to light.

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Perfect Auditors!!!

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Role of PWC

PWC Satyams auditors since Jun 2000 Credibility of PWC???...amount too big to be noticed PWC: our audit in accordance with the auditing standards generally accepted in India Satyam's financial statements are the responsibilities of the company's management under Satyams management controls over financial reporting and auditing Audit reports between June 2000 to September 2008 unreliable

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Role of Independent Directors

SEBI's Listing Agreement, calls for certain proportion of independent directors in the board. Companies appoint luminaries to the boards. Key Responsibilities protect interest of shareholders and strategy of the organization. Satyams Case - approval of buyout weakened the credibility of independent spirit. Future Impact - Independent directors will try to gain a greater understanding of a companys business.

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The fallout
Two class action suits files in US by shareholders of Satyams ADRs ICAI : Issued two revised accounting standards SA 500 and SA 720 to enhance quality of audits (effective April 1, 2010) Joint Audits for companies Scheme of rotation of auditors Planning to set up a rating system for corporate governance Planning to set up a serious fraud detection cell to assist regulators like RBI and SEBI to prevent similar incidents in future Government: Reviewing The Chartered Accountant Act, 1949, and the Chartered Accountant Regulations, 1988 to plug loopholes Serious Fraud Investigation Office (SFIO) of Ministry of Corporate Affairs probing accounts of 325 companies tied to Raju and family SEBI: Asks promoters of listed companies to disclose whether they have pledged shares Places PWC under probe
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 Today
Board decides to sell 51% stake Prospective bidders must: Submit detailed expression of interest Show at least $290 million dollars on books by March 20th Eligible buyers will gain access to business, financial and legal documents Potential suitors: Larsen & Toubro (has 12% stake) B.K. Modis Spice Group Tech Mahindra iGate IBM and others Fidelity Open offer of at least 20% of shares after acquiring up to 31% through a preferential allotment

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Thank You !

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PRESENTATION ON INDIAS ENRON SATYAM SCAM

Presented by:Nitin Gupta MBA, Sem-II

CONTENTS
MANAGEMENT INTRODUCTION HOW ITS HAPPENED WHAT WENT WRONG? IMPACT ON INDIAN IT INDUSTRY INDIAS STEP TO SAVE SATYAM WHO WILL ACQUIRE?

MANAGEMENT

FOUNDER CEO

: :

Mr. Raju Ramalinga Mr. A. S. Murthy

INTRODUCTION
Satyam was established in 1987. 4th fastest growing IT company in India. 9 % market share 40,000 employees Revenue $2.1 billion It is the first company of India listed in three International Exchanges i.e. NYSE, DOW and EURONEXT

HOW ITS HAPPENED

Maytas Acquisition. Investors Aborted. Board Members Resigned. On 7th Jan., 09, Chairman resigned after announced involvement in fraud.

WHAT WENT WRONG?

Inflated figures for cash and bank balances of INR 5,040 cr. (as against INR 5,361 crore reflected in the books). Operating Profit were artificially boosted from the actual 61 cr. to 649 cr. Satyam also showed an interest earning of Rs. 376 cr. that was fictitious.

Satyam development center

IMPACT ON INDIAN IT INDUSTRY

It is surely going to be more difficult for other Indian IT service players to win business. Undoubtedly, this is going to hurt the prospects of foreign money flowing into India. Global perception about indian companies. Indian stock market slipped over 7% on 7th Jan., 09.

INDIAS STEP TO SAVE SATYAM

The Indian Government has stated that it may provide temporary direct or indirect liquidity support to the company Govt. has appointed new board of members for Satyam consisting of heavy weights from India's corporate sector. Satyam is seeking bank loans to help cover salaries and other operating expenses

WHO WILL ACQUIRE?

MANAGING DIRECTOR
EX MANAGING DIRECTOR NEW VICE CHAIRMEN & MANAGING DIRECTOR

RAMALINGA RAJU

ANAND MAHINDRA

ORGANISATIONAL STRUCTURE
CEO

C.P. Gurnani

Board Members

Vineet Nayyar C. Achuthan T.N. Manoharan C.P. Gurnani Sanjay Kalra ULHAS N. YARGOP

S A T Y A M

TINTRODUCTION TLISTED TNETWORK TEMPLOYES TALLIANCES TDEVELOPMENT CENTRES

S A T Y A M
S

C A N D A L

On 7 January 2009, companys previous Chairman Ramalinga Raju resigned after notifying board members and the Securities and Exchange Board of India (SEBI) that Satyam's accounts had been falsified Raju confessed that Satyam's balance sheet of 30 September 2008 contained:

Inflated figures for cash and bank balances of Rs 5,040 crore (US$ 1.04 billion) (as against Rs 5,361 crore (US$ 1.1 billion) crore reflected in the books). An accrued interest of Rs. 376 crore (US$ 77.46 million) which was non-existent. An understated liability of Rs. 1,230 crore (US$ 253.38 million) on account of funds was arranged by himself. An overstated debtors' position of Rs. 490 crore (US$ 100.94 million) (as against Rs. 2,651 crore (US$ 546.11 million) in the books). Raju claimed in the same letter that neither he nor the managing director had benefited financially from the inflated revenues.

S A T Y A M

CURRRENT ASSETS

ACTUAL DEBT WAS 2161 OVERSTATED 490 CR. ACTUAL CASH IN BANK WAS 321 INFLATED 5040 CR.

LIABILITIES

NO ACCRUED INTEREST 376.34 CR. UNDERSTATE D LIABILITY 1230 Cr. Which was ARRANGED BY MR.RAJU

ARTIFICIALLY ADDED 588 OPERATING PROFIT ADDED 588 INCREASING THE CASH RESERVE ONLY FOR Q2 ALONE TO 588

S A T Y A M

S A T Y A M

SATYAM SCAM: SO HE IS TO BLAME`

Who is guilty in this sordid state of events?

But there were others who are also culpable.

S A T Y A M

SATYAMS AUDITORS

PRICE WATER HOUSE COOPERS

S A T Y A M

THE SEBI
The Sebi had in December given a clean chit to Satyam in the probe on violation of corporate governance law.

S A T Y A M

If the auditors were conned, it means that either the bank statement and certificates were forged Satyam's banks ICICI

WHAT MANAGEMENT COULE DO?

Change the name of the company. Reconstitution of the board :Restore the management of the company and appoint some reputed people as the board of directors. Try building confidence in the clients to get back the lost projects.

S A T Y A M

Tech Mahindra wins bid for Satyam Scam

Tech Mahindra is paying Rs1757 crore for a 31% stake in the company, or Rs 58 per share. Satyam Computer Services has now zoomed 15% to Rs 54.20 ahead of the announcement of the highest

m a h i n d r a

S A T Y A M

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