Sat Yam Project (2003 Word)

8/4/2019 Sat Yam Project (2003 Word)

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SATYAM

THE

TRUTH

______________________________________________________________________________


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ACKNOWLEDGEMENT

I wish to acknowledge my profound gratitude to all those who assisted in

the completion of this project. Of the many people, who have been

tremendously helpful in its completion, I m extremely thankful to my

mentor Mrs. Neelam Goel for her constant support, guidance and hep

during the corse of the project.

DECLARATION

I, PRACHI TANEJA, hereby declare tht this project is based on my

understanding of this subject and has not been copied from any published

source or website. I certify that all the work done on the project s the

outcome of my own efforts and I have not imitated the project or any part,

howsoever, from any pre-written source.

Under the Guidance of: Submitted by:Mrs. Neelam Goel Prachi Taneja

Commerce deptt Bcom Hons 3rd

yrDelhi University Roll No. 770

SHYAMA PRASAD MUKHERJEE COLLEGE


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TABLE OF CONTENTS

1) IT Industry 42) Satyam Owners 53) Satyam Profile 64) Satyam Clients 85) Structure of the board 96) Satyam Share Holding Pattern 107) Controversies surrounding Satyam Computers Ltd. :

Maytas Acquisition Satyams justification for Maytas buyout deal Reaction of Investors Result of Investors Reaction

Upaid Law Suit World Bank Accounting Scandal 2009 Exposed

Rajus Confessions Why confession

8) How Did it all Begin?? Time line

What happened on 6

th

, 7

th

and 8

th

Jan 2009?? 7 january TURNING POINT Fabricated Income Statement Technique Satyam used Fake FD receipts and Employee nos. Parallel Finance department

9) Stock Charting 2310) Comparison Satyam and Maytas share prices 2411) The partners and other company bigwigs in crime 25

Price Water House Coopers12) Lawsuits filed against Satyam in US 2713) Views and Effects of the scam 28

Views What went wrong?? The SEBI The Bankers Dependent and Independent Directors


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Investment Bankers Shareholders and the Media Raju Brothers spends time in jail like

Ordinary prisioners

Ram Mynamati CEO of Satyam Over half a million people have a stake

in Satyam survival

Andra Pradesh Govt. is not involvedin the scam

Govt. plans Rs. 2000 crore package for Satyam Satyams market price cant be used for

Valuation of Satyam

No advance tax paid by Satyam in FY09 Effects 35

Worried Investors Exit PwC clients Govt. should protect worried Satyamemployees

ICAI asks Pwc to explain Satyam Account Restructuring Process Impact on India INC. NASSCOM advices against poaching

Satyam clients

No delay in Satyam Probe Prioritized Plan of action

14) In the news 4115) This case led to?? 43

Changes in regulation Training Some additional measures

16) SWOT analysis 4417) Scenario after the scam 4518) Conclusion 46

Factors that contribute to the fraud How did the scam happened Corporate lessons to be learnt Moral lessons for recapitulation

19) Biblography 48


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IT INDUSTRY

Information technology (IT), as defined by the Information TechnologyAssociation Of America (ITAA), is the study, design, development,

implementation, support or management of computer-based informationsystems, particularly software applications and computer hardware.

IT is one of the most important industries in the Indian economy. The ITindustry of India has registered huge growth in recent years and is

expected to grow continuously.

Indias IT industry grew from 150 million US Dollars in 1990-1991 to awhopping 50 billion US Dollars in 2006-2007.

In the last ten years the IT industry in India has grown at an averageannual rate of 30%.

In 1970, high import duties had forced IBM to leave India. However, afterthe early nineties, many Multinational Information Technology

companies, including IBM, have set up their operations in India.

During the ten year period 1992-2002, the Indian Software industry grewat double the rate as the US software industry. Deregulation policiesadopted by the Government of India have led to substantial domestic

investment and inflow of foreign capital to this industry.


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SATYAM OWNERS

B. Ramalinga Raju

Founder & Chairman,

Satyam Computers Ltd.

B. Rama Raju

Promoter & CEO,

Satyam Computers Ltd.


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SATYAM PROFILE

Satyam Computer Services Ltd was founded in 1987 by B.Ramalinga Rajuto provide services in IT sector and was promoted by the two brothers B.Rama Raju and B. Ramalinga Raju.

A leading global business and information technology companydelivering, consulting, systems integration, and outsourcing solutions to

clients in over 20 industries.

The company offers information technology (IT) services spanning varioussectors, and is listed on Bombay Stock Exchange, National Stock

Exchange, the New York Stock Exchange and Euro next(Amsterdam).

On 26th August, 1991 it was converted into a Public Limited Company andwent for P

UBLIC ISS

UE in 1992. BSE IPO oversubscribed 17 times whenmade public.

Its network covers 67 countries across six continents and it has itsHeadquarter at Hyderabad.

The company employs 40,000 IT professionals across developmentcenters in India(Hyderabad, Bangalore, Chennai, Pune, Mumbai, Nagpur,

Delhi, Kolkata, Bhubaneswar, and Visakhapatnam), the United States, the

United Kingdom, the United Arab Emirates, Canada, Hungary, Singapore,

Malaysia, China, Japan, Egypt and Australia.

It serves over 654 global companies, 185 of which are Fortune 500corporations and has strategic technology and marketing alliances withover 50 companies.


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Achievements of the company: It is the first IT Company in the World Certified under ISO9001:2000 It is ranked among Indias Top 10 Best Employers (2004 and 2003). It comes in Top 13 Best-Managed Companies in India. It has won SAP Pinnacle Award 2008. India's fourth-largest software services exporter, Satyam Computer

Services received a Golden Peacock Global Award from a group of

Indian directors for excellence in corporate governance on Global Level

for 2nd time.

United Kingdom Trade and Investment India Business Award forCorporate Social Responsibility and transparency.

During the year 1996 company promoted 4 subsidiaries: Satyam Renaissance Consulting Ltd. Satyam Enterprise Solutions Pvt. Ltd. Satyam Info way Pvt. Ltd (e-commerce) and Satyam Spark Solutions Pvt. Ltd. (software's)

Providing internet in India: In the year 1999, Satyam Info way Ltd, became the second largest

Internet services provider in India based on the number of customers.

Satyam Info way (sify) is the first Indian Internet company listed onNASDAQ.

The Company launched its shopping channel as (www.sifymall.com). In 2001, The American depositary shares (ADS) of Satyam Computer

Services on May 16 was listed at .16 $ on the New York Stock Exchange

(NYSE) at a premium of 14.9 per cent to the offer price.

During 2002, Satyam Computer Launched operations in China. Industry presence:

Satyam provides services in the following areas:- Aerospace and Defence

and Travel, Logistics & Industrial Equipment, Energy and Utilities, Life

Sciences & Healthcare, Banking, Financial Services & Insurance,Manufacturing, Chemicals & Automotive, Public Services & Education,

Retail and Consumer Packaged, Telecom, Infrastructure, Media and

Entertainment & Semiconductor


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SATYAM CLIENTS


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STRUCTURE OF THE BOARD


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SATYAM SHARE HOLDING PATTERN

8.74%

61.22%

10.58%

19.46%

Shareholding Pattern as on 31st March

2008

Promoters

InstitutionalShareholders

Non-Institutional

Shareholders

Custodians


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CONTROVERSIES SURROUNDING SATYAM

COMPUTERS LTD.

1.MAYTAS ACQUISITION

Rajus hold 36.64 per cent while institutional holding is 10.92 per cent The company had raised Rs 327.45 crore through IPO. It had a turnover of Rs 1,660 crore and net profit of Rs 100 crore in thelast financial year. Satyam planned to acquire 51 per cent stake for Rs 1, 440 crore or $0.3

billion.

Rajus family owns 35% stake of Maytas properties Founded in 2005, it has a land bank of 6,800 acres

It has clearances for three IT SEZs based on 148 acres An undisclosed stake is held by Infinite India Investment Management, a

realty fund jointly promoted by JM Financial and US-based SRM

Investments, which invested Rs 600 crore in February.

The deal was to be financed by Satyams surplus cash. Satyams share

prices fell reflecting share holders disbelief. Later on, Valuation of Maytas

turned out to be fraudulent. Raju raised cash & siphoned off funds usedto buy several thousands of acres of land across AP through several

benami accounts and this helped Maytas in getting major contract. He

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.


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Satyams justification for Maytas buyout deal

De-risk the core business The integrated organization would be stronger and more diversified to

deal with the uncertainty of the market. He had a feeling that in the recent times it is difficult to make a

strategic deal with other IT companies.

Reaction of Investors

The shareholders realised that the buyout was not profitable forthem. Satyam using the reserve cash to purchase Maytas Infra and

Maytas Properties was a big risk.

Result of Investors Reaction

The result of investors reaction was that part of investors succeededto thwart the buyout attempt by the minority-shareholding

promoters who thought of using the firms cash reserves to buy two

companies already indirectly owned by them Maytas Propertiesand Maytas Infra.

The aborted attempt towards expansion precipitated a collapse in theprice of the companys stock and also led to the shocking confession

of financial manipulation and fraud from its chairman, B. Ramalinga

Raju.


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HOW DID IT ALL BEGIN??

TIME LINE


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2.Upaid Law suit UK mobile payments company Upaid Systems filed a case in the Texas

court in 2007 of intellectual fraud and forgery against Satyam in 2007

i.e. Satyam provided forged documents to Upaid in patents filing thateventually resulted in the company losing its patents infringement

case against telecom giants Qualcomm and Verizon.

On 9-December-2009 Satyam settled the lawsuit with UPAID for$70Mn, of which $45Mn was payable upon regulatory approval, and

the remaining $25MM was payable a year after the initial payment.

3.World Bank The World Bank banned Satyam from doing business with it for 8 years

due to inappropriate payments to the World Bank's staff. The World

Bank accused Satyam of giving improper benefits to its (the Bank's)

staff and of failing to maintain documentation to support fees charged

for its subcontractors. However, it clarified that Satyam was not

involved in incidences of data theft or malicious attacks that had been

made on the Bank's information systems.


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What happened on 6th

, 7th

, 8th

Jan 2009??

DSP Merrill Lynch informed SEBI about Material irregularities in Accountson 6

th

Jan Minutes of Meeting of 16th December,2008 were not submitted to RoC

(This created some doubts)

Companys previous Chairman B. Ramalinga Raju resigned after notifyingboard members and the Securities and Exchange Board of India (SEBI)

assured that Satyam's accounts had been falsified.

Hearing ofUpaid- satyam case on 8th Jan at the US court.


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7 January The Turning Point..


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Fabricated Income Statements

Creative Account Practice

4.Accounting scandal of 2009 finally exposed

The fraud has brought to light the fact that in India the distinctionbetween owners and management is still not very clear i.e. the owners

can also be the managers.

Satyam is the biggest fraud in India's corporate history. The company management, mainly disgraced chairman B Ramalinga

Raju, kept everyone -- seemingly -- in the dark for a decade and

tarnished shining India's image horribly, is as stupefying a fact as theRs 7,800 crore (Rs 78 billion) scam itself.

The company's account books said that Satyam had over Rs 5,000crore billion (Rs 50 billion) in the bank, when it did not. Raju said that

he had been fudging the account books for 'several years' and despite

this no one but he, and his brother, knew of this.


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Raju Confessions

-Raju confessed that Satyam's balance sheet of 30 September 2008 contained:

Inflated(non existent) figures for cash and bank balances ofRs 5,040crores(as against Rs 5,361 crore reflected in the books).

An accrued interest ofRs. 376 crore which was non-existent. An understated liability ofRs 1,230 crore on account of funds was

arranged by himself.

An overstated debtors' position ofRs 490 crore(as against Rs 2,651 crore in the books).

For the second Quarter Satyam reported a revenue ofRs 2,700 crore andan Operating Margin ofRs 649 crore (24% of revenues)

As against the actual revenues ofRs 2,112 crore and an Operating MarginofRs 61 crore (3% of revenues)

This has resulted in a artificial bank and cash balance going up by Rs 588crore in Q2 zone.

-Details of cash balances with Scheduled banks are not there in the Annual

report.

-Question raised by Equity analyst Kawaljeet Saluja -$500 mn cash parked in

current account.

Why confession??

Recession drained the liquidity to run the show Out standings were piling up Since listed in US, SEC rigors would take over Unmanageable gap between actual and book profit It was like riding a tiger, not knowing how to get off without being eaten-

Raju Ramalinga while admitting the fraud.

Every attempt made to fill the gap failed. As the promoters held a smallpercentage of equity, the concern was that poor performance would

result in a take-over, thus exposing the gap.

The aborted Maytas deal was the last attempt to fill the fictious assetswith real ones bt that also was unsuccessful.


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On Wikipedia, for the first time, India has been put on to the list of largestcorporate scandals in the world, all thanks to Satyam a blogger.

If the first fraud is for Rs100, the next time add another zero. It(accounting fraud grows exponentially Anil Roy, Grant Thornton India.

Overstated cash Understated Liabilities Fraud Amount

balances, Income

receivables.

TECHNIQUE SATYAM USED

Investment in Real estate

(Land Banks)

To keep EPS high

Soldhis stake at inflated price

(Made Rs.2,065 cr from shares)


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Fake FD receipts and Employee Nos.

PARALLEL FINANCE DEPARTMENT??

Take FDreceipt

Tell to BanksFD receipt is

Lost

Ask for DuplicateReceipts

Use the Duplicate toWithdraw money

Park theMoney

in otherBank

At the endshow the

original FDreceipts

The moneyhas already

vanished

Mr. Raju

RamaKrishna

VP FinancePWC Auditors


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STOCK CHARTING

*Sensex stock index dropped by 7.3% and Satyam shares fell by nearly 78%.


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COMPARISON SATYAM AND MAYTAS SHARE

PRICES


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PARTNERS & OTHER COMPANY BIGWIGS IN

CRIME

The Satyam board, including its five independent directors had approvedthe founder's proposal to buy 51 per cent stake in Maytas Infrastructureand all of Maytas Properties, owned by the family members of Satyam

chairman B Ramalinga Raju.

Despite the shareholders not being taken into confidence, the directorswent ahead with the management's decision.

The decision of acquisition was, however, reversed 12 hours later afterinvestors dumped Satyam's stock and threatened action against the

management.

Satyam's chief financial officer Srinivas Vadlamani was remanded toJudicial Custody till January 23 by the 6th Metropolitan Magistrate on

sunday. He has even admitted to signing on the dotted line , saying he

never really paid much attention to the balance sheet! But could only two

or three people have managed to cook the books for years of a company

so large?. It is quite likely that some other top managers in the company

too were in the know of what was happening but chose to keep quiet.


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Here the role of auditors started i.e. the role of PRICEWATER

COOPERS started.

So what were the auditors, PricewaterhouseCoopers, doing? There wasno cash with in the company's banks and yet the auditors went ahead

and signed on the balance sheets saying that the money was there.

Not just the cash, even they even signed off on the non-existent interestthat accrued on the non-existent cash balance!

The company officials said they relied on data from the reputedauditors.

PWC had been auditing satyams balance sheet since year 2000.Companies have to keep bank statements for the current and preceding

years at registered offices. It is suspected that the files vanished as they

would have given away the fraud.

Credibility of PWC???...amount too big to be noticedPWC:

our audit in accordance with the auditing standards generallyaccepted in India

Satyam's financial statements are the responsibilities of thecompany's management

under Satyams management controls over financial reporting andauditing

Audit reports between June 2000 to September 2008 unreliable


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LAWSUITS FILED AGAINST SATYAM IN US

About a dozen lawsuits have been filed against Satyam Computer in UScourts, charging the Indian IT firm with duping thousands of Americaninvestors out of billions of dollars.

Asked about the specific damages sought in the lawsuit, law firmVianale & Vianale LLP's counsel Keneth J Vianale said that the sum

duped could be in hundreds of millions of dollars.

Vianale said in an emailed statement to PTI: "We have not alleged aspecific damages amount that we are seeking. That will be a subject of

expert testimony.

"However, in cases of this sort, it is not unusual for the damages to be inthe hundreds of millions of dollars."

Another law firm Pomerantz Haudek Block Grossman & Gross said thatit "has commenced an investigation of the scandal on behalf of investor

clients, and is exploring the possible claims that can be raised, including

under the federal securities laws . . .

". . .and focusing on identification of possible defendants in addition tothe Raju brothers, such as outside auditors, and on the location of assets

in this country."

After the scandal was revealed, trading in Satyam shares was halted bythe NYSE on January 7 and the stock exchange has said that it isassessing whether the firm deserves to stay on the bourses.

The trading could be resumed on Monday if its review is satisfactory,the exchange said in a statement.

In these lawsuits, Satyam Computer has been charged with dupingthousands of American investors by artificially inflating share price.

While two lawsuits were filed on January 7, the day when Satyam'sfounder-chairman Ramalinga Raju resigned after disclosing massive

financial irregularities to the tune of over a billion dollar, so far there

has been nearly a dozen lawsuits that have been filed against thecompany.

Earlier, nearly six law firms including Brodsky & Smith LLC, GlancyBinkow & Goldberg LLP, Harwood Feffer LLP, Sarraf Gentile LLP, Vianale

& Vianale LLP and Izard Nobel LLP had filed class action law suits against

Satyam Computer.


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VIEWS AND EFFECTS OF THE SCAM??

VIEWS

1.WHAT WENT WRONG??Manipulation of Softwares, Lack of Audit Controls,

Systemic Reviews, Insider Training

2.THE SEBI The Securities and Exchange Board of India, which says it is 'horrified at

the magnitude of the fraud' had in December given a clean chit to Satyam

saying that it had not found any violation of norms relating to takeover

and corporate governance in its preliminary surveillance of the deal

involving the acquisition of Maytas Infra by Satyam Computer Services.

Thus there was no need for a formal investigation. Therefore, the probewould be limited to the deal between the two listed entities -- Satyam

and Mayta

Infra -- and not cover the one involving Satyam and unlisted firm Maytas

Properties. Analysts say the market watchdog lacks the teeth for ensuring compliance

on governance. Now, after so much water has flown under the bridge,

SEBI has moved to 'take action' against the company.

3.THE BANKERS The company's bankers -- and it has a whole bunch of them, considering it

is a huge company -- too have been shown in poor light. Satyam's books showed cash to the tune of over Rs 5,300 crore (Rs 53billion) in its banks.

Satyam's banks -- ICICI Bank, HDFC Bank, Bank of Baroda, etc -- weresupposed to provide bank statements on a quarterly basis and bank

certificates on basis of which auditors go ahead and signed the balance

sheet.\


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4.DEPENDENT and INDEPENDENT DIRECTORS The role of the company's directors, including independent directors, in

the entire episode too has been exposed after the Satyam episode.

Most of them essentially remain 'nodders' in the boardroom and agree towhatever the management or the promoters want to push through.

The Satyam board, including its five independent directors had approvedthe founder's proposal to buy 51 per cent stake in Maytas Infrastructure

and all of Maytas Properties, owned by the family members of Satyam

chairman B Ramalinga Raju.

Despite the shareholders not being taken into confidence, the directorswent ahead with the management's decision.

The decision of acquisition was, however, reversed 12 hours later afterinvestors dumped Satyam's stock and threatened action against the

management.

5.INVESTMENT BANKERS Investment banker DSP Merrill Lynch was appointed by Satyam to look

for a partner or buyer for the company a fortnight ago. We now know that DSP Merrill terminated its engagement with the

company soon after it found financial irregularities.

Merrill Lynch is also understood to have sent the information and thereason for their termination of the contract to the Bombay Stock

Exchange, Sebi and even the New York Stock Exchange, on which Satyam

is listed.

However, despite the fact that DSP Merrill Lynch blew the whistle, it isnot yet clear why it took such a long time to inform the authorities, and

why it did not let the public know of Satyam's misdeeds. DSP Merrill has not yet answered these questions. Yet in the whole shady affair, DSP Merrill comes out the best party as it

was finally because of its move that Raju was forced to quit.


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6.SHAREHOLDERS AND THE MEDIA

Sometimes activism just does not help. When Raju sought to push through the Maytas deal without taking

shareholders into confidence, he was faced with huge protests.

The media, keen to help the underdog, too joined in the protest. Raju was forced to cancel the deal. In hindsight, it appears that it would have perhaps saved Satyam if the

deal had been allowed to go through, as Satyam would have been able to

use Maytas's assets to shore up its own books.

Raju, who showed artificial cash on his books, had planned to use this'non-existent cash' to acquire the two Maytas (which is Satyam spelled in

reverse) companies.

Since the Rajus held more than 36 percent stake in Maytas, it would havebeen easy to push through the deal, at least from that side.

But with the shareholders and the media queering the pitch, the deal fellthrough and now so has Satyam.


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7.RAJU BROTHERs spends time in jail like OrdinaryPrisioner

Thegovernment, on its part, was perhaps too busy projecting the stellarshow of the Indian IT sector and did not find it necessary to launch anenquiry into these 'complaints,' so to speak. Thus by way of negligence

the government too is equally guilty in not having managed to save the

shareholders, the employees and some clients of the company from losing

heavily.

Satyams case was fought by advocate Bharat Kumar. But he lost the caseand The Founder of Satyam Computer, B Ramalinga Raju, who lived like a

'king' before admitting fudging of company accounts to the tune of Rs

7,800 crore (Rs 78 billion), slept on the floor of the Chanchalguda Central

Prison here like other ordinary prisoners and later on Srinivas Vadlamaniwas also shifted there.

According to sources, the Raju brothers have been given the status of 'C'class prisoners or undertrials. They had to sleep on a mat on the ground

like all other prisoners and were offered the usual prison dinner of rice

and rasam, which the elder Raju refused, sources said.

January 10 and is now spending most of his time in the jail by readingbooks and is keeping himself abreast with latest developments through

newspapers.

Some ardent followers of B Ramalinga Raju and some employees ofMaytas are invoking the Almighty to come to the aid of the beleaguered

IT strongman.

These fans conducted a prayer and havan service to help the disgracedformer chairman of Satyam Computer Services obtain bail.

The prayers are being held so that Raju comes out of this entire episodeunscathed.


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8.RAM MYNAMPATI CEO OF SATYAM

A prime prospect for probe by regulators and authorities investigatingthe Satyam fraud, acting-CEO Ram Mynampati appears to be the IT

company's most valued asset and drew a salary more than that of

founder Ramalinga Raju and all the directors put together.

At the same time, its independent directors, many of whom have quitSatyam board after the Maytas fiasco on December 16, got at least Rs 1

lakh (Rs 100,000) a month as commission and sitting fees.

Mynampati, who is now being questioned by the team of marketregulator SEBI, got a total package of over Rs 3.5 crore (Rs 35 million)

during the year ended March 2008, while founder and Chairman had to

contend with just about one fifth.

A perusal of company documents reveals all the directors, exceptMynampati, got a total of Rs 2.6 crore (Rs 26 million) as salary,

commissions, sitting fees, professional fees and other receivables.

What is surprising is the difference between the package of Mynampatiand all the others put together is about Rs 1 crore (Rs 10 million), almost

the same that the second best package that was given to independent

Satyam director Krisha G Palepu.

After Mynampati the package for Ramalinga Raju totals Rs 60.4 lakh (Rs6.04 million), followed by his brother Rama Raju at Rs 44.07 lakh (Rs 4.40

million).

The company paid a total of Rs 1.56 crore (Rs 15.6 million) to its sevennon-executive directors. Other than V P Rama Rao, who was on the Satyam Board for just about amonth, independent directors got between Rs 12 lakh to Rs 13.2 lakh (Rs

1.2-1.32 million) a year.

Harvard Business School professor Palepu bucked the trend and got Rs91.91 lakh (Rs 9.19 million) for 2007-08, which includes a professional

fees of Rs 79.51 lakh (Rs 7.95 million).


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9.OVER HALF A MILLION PEOPLE have STAKE IN SATYAMSURVIVAL K.V. KAMATH, M.D. , ICICI BANK

The big question on survival of Satyam Computer is giving anxiousmoments not only to its over 50,000 employees but also to over half-a-

million people, who would get impacted indirectly if the IT firm does not

come out of the trouble, Confederation of Indian Industry president K V

Kamath said on Saturday.

Kamath said each of over 50,000 Satyam employees supports a family offour. "Every white collar job creates four another jobs. (So) you are

talking about anything between half-a-million to a million people, who

could directly or indirectly have been impacted by this single event,"

Kamath said. He said the crisis had such a social magnitude that made the government

act swiftly and save the company.

Besides CII, Assocham and Ficci have also welcomed disbanding of theSatyam board of directors by the government.

They expressed hope that the move would help restore investorconfidence not only in Satyam but in corporate India in general.

10. Andra Pradesh Govt. involved in the Scam Andhra Pradesh government was in no way involved in the massive

accounting fraud at Satyam Computer, State Finance Minister K Roasaih

has said.

"The State government has nothing to do with the Satyam Computerissue. The Centre was looking into the issue," he told reporters in

Vijayawada.

The minister was responding to Opposition parties' charge that theCongress government was involved in the scandal at the Hyderabad-based software firm.

"Instead of giving suggestions how to revive Satyam Computer andprotect the interest of its 53,000 employees, Opposition parties were

making baseless allegations against the government," Roasaih said.


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The '108' emergency services in the state, currently maintained by EMRISatyam Group Trust, would not be affected in wake of the financial fraud,

he said.

Many philanthropists and organisations are coming forward to supportand run the emergency services (which can be availed by dialing 108), theminister added.

11. Govt. plans Rs 2000-crore package for Satyam The Indian Government has decided to take direct action to looking at a

salary bailout for the 53,000 Satyam Computer Services employees.

A Rs 2,000 crore package is under consideration to ensure that Satyamemployees get their salary on time after it the new board said that they

are looking for funds. The government is looking at giving three instalments of Rs 500 crore to

Satyam for the next three months and is planning another infusion of

about Rs 400 crore.

12. Satyams Market Price Can Not Be Used ForValuation Of Satyam

Asserting that only action could determine the sale price for Satyam,Modi said that stock market price could not be considered a benchmark inthis case, as the market was not fully aware about the firms actual assets

and liabilities.

Even the board is not aware (about the assets and liabilities), so themarket is working on the available information. So, I dont think there

could be any basis of reserve price, Modi added.

13. No advance tax paid by Satyam in FY09 Satyam Computer has not paid a single rupee as advance tax in the first

three quarters of the current fiscal, though the IT company paid Rs 25 cr

as fringe benefit tax (FBT) till December 15.

As payment of advance tax is always considered an indicator ofprofitability of a company, Satyams non-payment of advance tax could

also imply that trouble had been brewing for a long time.


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EFFECTS

1.WORRIED INVESTERS EXITPwC CLIENTS

Investors brought shares of other companies in the same sector Out of 100 clients of PwC, most companies share fell by 5-15%. Risk of Reputation

\

2.GOVT. should protect WORRIED SATYAMEMPLOYEES

The Bharatiya Janata Party asked the Centre and Andhra Pradeshgovernment to take steps to protect the interests of 53,000 employees and

investors of the scam-hit Satyam Computer.

"The government of India and Andhra Pradesh government should take allsteps to protect the interests of investors and the company's employees,"

senior BJP leader Venkaiah Naidu said on the sidelines of the BJP's Youth

Rally in Chennai.


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3.ICAI asks PwC to EXPLAIN SATYAM ACCOUNT Chartered accountants body ICAI served a showcause notice on

auditor PriceWaterhouse and asked it to submit balance sheets of

Satyam Computer audited by it in the last five years.

"We today served showcause notice on PriceWaterhouse and askedit to reply within 21 days," Institute of Chartered Accountants of

Indiap resident Ved Jain told PTI.

If the reply to the notice does not come by 21 days, all members ofPriceWaterhouse who audited the Saytam accounts could be

banned for life time, Jain said.

The firm has also been asked to submit balance sheets, financialstatements and other relevant documents of Satyam Computer

audited by it for the last five years, he said.

The audit firm has maintained that it followed applicable auditstandards and went by audit evidence provided by the company.

The ICAI president said action against CAs, who audited the accountsof Satyam Computer, can be expected in 2-3 months, if found guilty.

Jain said Satyam founder Ramalinga Raju's statement that only heknew about the financial wrong-doings did not look like the whole

truth, as he did not write the accounts of his company.

Ramalinga Raju in a letter written to the company board admitted,"...None of the board members, past or present, had any knowledge

of the situation in which the company is placed." Chartered

accountants body ICAI on Saturday served a showcause notice on

auditor PriceWaterhouse and asked it to submit balance sheets of

Satyam Computer audited by it in the last five years.


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4.RESTRUCTURING PROCESS The Government decided to appoint nominee-directors. The new board

will take a decision on a new management team. Satyam's three-member board constituted by the government had been

appointed as a management advisor met for the first time on Monday to

discuss ways to revive IT company SATYAM.

Eminent banker Deepak Parekh, IT expert Kiran Karnik and former Sebimember C Achuthan arrived at the Infocity campus of Satyam in

Hyderabad for the meeting, in which the chairman of the board is

expected to be elected.

Deepak Parekh Kiran Karnik C. Achutan

Former HDFC Chairman Former NASSCOM Chairman Former SEBI Member

Satyam board has appointed GOLDMAN SACHS & AVENDUS as itsInvestment Bankers.

Companies and government are closely watching Satyam strategies. Theyfeel that satyam should stand of its own first, if not then only other

companys would approach for a takeover/acquisition of satyam.

Other IT company like HCL is also considering a possibility of the takeoverand keeping a watch on satyam moves.

But at last the TECH MAHINDRA has take over the satyam and in june2009 its to new name MAHINDRA SATYAM.


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5. IMPACT On INDIA INC. Questions have been raised on the balance sheets of other IT Companies

and the role of auditors. Investors loosing faith in major IT firms and other major Corporate due to

fraud arisen out of Mr. Rajus confession.

Due to the satyam turbulence, 70 independent directors of variouscompanies including ZeeNews, TVS Motors, BHEL etc, had quit from

satyam and resigned from there respective companies.

SEBI has made mandatory for the promoters of the companies to disclosedetails of the shares pledged by them.

6.NASSCOM advices against poaching SatyamsClients

While welcoming the reconstitution of the scam-tainted Satyam board,the Nasscom chairman Ganesh Natrajan said the apex body had advised

its members to desist from making "unsolicited offers" to the customers

of the beleagured company, which has earned the dubious reputation of

being 'India's Enron'.

The IT industry in the country was "mature" enough to resist suchundesirable practices and poaching on the customer base of Satyam,

whose business continuity needs to be ensured, he told PTI.

The government had taken the right steps in the matter and Nasscomwas hopeful that new board with proven track record of its directors

would restore credibility of Satyam taking care of the liquidity aspect and

uninterrupted business schedules, Natrajan said.

It was important to ensure that in the outsourcing, customers did notlose their faith in Indian companies, he stressed.


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7. No Delay in SATYAM PROBE The government said that there was no delay in acting against the tainted

founder of Satyam, B Ramalinga Raju.

"There would be no laxity against the guilty... So let us not talk about anyindividual or the auditors (PwC) of the company," Minister for Corporate

Affairs Prem Chand Gupta told reporters when asked what action would

be taken against Raju and auditors.

"We are very clear and a co-ordinated action would be taken," he said. The apex body of accounting firms Institutes of Chartered Accountants in

India has sought some information from the auditors of the company and

Financial Reporting Review Board, the minister said, adding that they can

ask for workingpapers of the audit and that has already happened. "Once

that (the papers) is received, ICAI will take its view," he added.

8. Prioritized Plan Of Action

Restore cash flow to secure Financial Stability. Customer retention and infuse confidence to continue. Employee motivation and Management restructure. Legal advisors In India and USA appointed. Internal audit entrusted to an external firm. Management Consultants and Board Advisors appointed. Forensic investigation to facilitate restatement of accounts initiated.


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IN THE NEWS


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THIS CASE LED TO??

CHANGES IN REGULATION

SEBI now allows certain changes or exemptions in the takeover code in caseof a company in crisis.

This helps the investors in the stocks of a company like Satyam Case in pointthe value of Satyam shares was only19 rupees after the

revelation

However, six month share price average of share was 270275 rupees pershare

SEBI requires at least half of the directors in the boards of publicly heldcompanies to be independent. SEBI prohibits insider trading and has in place a strong mechanism against it .

They keep track of the following: Details of acquisition of 5% or more shares in a listed company Details of shares held by Director or officer of a Listed company Details of change in shareholding in respect of persons holding more

than 5% shares in a listed company

Details of change in shareholding of Director or Officer of a ListedCompany

Compulsorily appoint external auditors to do internal audits These auditors are also allowed to restate the profits if required Mandatory for companies to disclose the percentage of promoter

shareholding that is encumbered.

TRAINING

National Institute of Securities Market, an initiative of SEBI trainsprofessionals in internal auditing.

This programme aims at helping the audit professionals to carry out aneffective internal audit of the brokers books in order to satisfy the

requirements of Sebi and the exchanges.

Ensures compliance with the provisions of the Sebi Act, 1992, SecuritiesContracts (Regulation) Act, 1956, SEBI (Stock brokers and Sub- brokers)

Regulations, 1992, circulars issued by SEBI.


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SOME ADDITIONAL MEASURES

Requirement of professional qualifications/financial literacy for ChiefFinancial Officer (CFO)

Rotation of Audit firms / partners Appointment of an external audit firm as internal auditor of the company Modification in formats of limited review report and statutory auditors

report

Voluntary adoption of International Financial Reporting Standards (IFRS) bylisted entities having subsidiaries

Interim disclosure of balance sheet items by listed entities Timelines for submission of financial results by listed entities.

SWOT ANALYSIS

STRENGTHS

World class infrastructure Leadership and talent pool Premium Customers Low debts

WEAKNESS

Tainted image Class action suits Silos management structure Third party claims

THREAT

Investigating agencies Media Revenue deptt New tendering BGs, Solvency

Certificates & Audited

statements

OPPORTUNITY

Pledge assets to raise fundsfrom banks

Persuade clients to pay up Create change on receivables

to continue existing debts.

For about 15 weeks there was no owner in control


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SCENARIO AFTER THE SCAM

Two critical options

Continue to run the Business, clean up and restate the accounts, re-audit, enablevaluation, due-diligence and offer for take over; or

Immediately identify a strategic investor who will infuse capital and take overcontrol & management

Chose the second option after due deliberation Investment Bankers appointed, Bidding process set in motion with Former Chief

Justice of India as Observer

SEBI and CLB were moved for appropriate relaxations

Bidding process

Press release on 9th March inviting registration RFP was sent to 141 registered- only 10 submitted EOI Out of 10, 7 met the criteria and were sent documents for execution 5 submitted documents but later 2 withdrew for want of internal approvals leaving

3 in race

Thus, WL Ross; L&T and Tech Mahindra competed Information had to be given to Bidders to facilitate quoting price per share for

preferential allotmen

Strategic Investor Selection

Virtual and Physical data room created and access provided Site inspection of 2 main campuses arranged Management presentation made for each bidder exclusively show casing the facts

and potentials

Conference call slots were given to clarify on legal matters and again on financialsseparately

One meeting between each of the bidders and the Government nominated boardon 3rd April

Technical and Financial bids received on 13th April and highest bidder TechMahindra selected and The Prime Minister Mr. Manmohan Singh appreciatedthe company.


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CONCLUSION

It is a collective failure of directors, auditors and regulatory agencies inensuring transparency and accountability; As a consequence of this fiasco, the

overseas client may take a hard look at most Indian outsourcing companies andinvestment flows could be hit.

The responsibility for preventing fraudulent activities lies with the Board ofdirectors. Their acts and conduct impact the reputation of India and, therefore,

they must ensure that the highest standards of corporate governance are set.

The Quality Review Board ('QRB'), an independent body set up under the MCA,is looking into the standards of audit for chartered accountancy firms with a

view to redefine new stringent norms for audit firms. It may ask the SEBI and

MCA to mandate listed companies to rotate their auditors to prevent Satyam-

type frauds - practice being followed in public sector companies.

There is a need of time to take the investigation procedure in effective andefficient way to clear every issue and make it sure that such incident will nothappen again in future, it is necessary to solve the above questions and to fill

the gaps of the loopholes.

We also wish that the company stands once again whooping investors not withthe false promises but in accordance with its name that is TRUTHFULNESS.

Quickly put the issues behind us and ensure continuity of our operations andour services delivered to our customers.

Do everything that we can as an organisation to ensure the stakeholders Restore confidence of the customers employees, suppliers and investors by

ensuring business continuity. There are legal provisions in other countries to deal with Corporate Fraud such

as FOREIGN CORRUPT PRACTICES ACT OF 1977, THE SARBANES-OXLEY ACT OF

2002, etc. and so should we have to avoid such frauds.

FACTORs that contribute to the FRAUD

Greed-Ethical values given a go by Executive incentives Stock market expectations Nature of accounting rules Audit failures- Internal & External Aggressiveness of investment banks, commercial banks, rating agencies and

investors

Weak Independent directors and Audit committee Whistle blower policy not being effective


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How did the scam happen?

Ambitious growth drive Audit failure- example., External confirmations of Bank balances not properly done Deceptive reporting practiceslack of transparency ESOPs issued to those who prepared fake bills Excessive interest in maintaining stock prices High risk deals that went sour Above all, greed and lack of Ethical values

Corporate lessons to be learnt

Rotation of audit firm vs rotation of audit partner

Strengthening of Quality review (Peer review) Joint Auditors to audit companies beyond a size Internal audit of Financials by an external firm with undiminished scope Composition of Board and quality and qualification of Independent directors Audit Committee meetings - adequacy of notice and adequacy of duration Criteria for remuneration to Key Personnel Effective whistle blower policy in place Focus on Intangibles & Tangibles follow Education on Ethical values

Moral lessons for Recapitulation

Humility helps while Ego hurts Distinguish between opportunities and temptations Build quality teams and enable succession Adapt with technology/knowledge changes but stay static on fundamentals Listen to your head in complying with law and to your heart in dealing with people Many good things done get washed away in one bad conduct To live beyond your age- Love people and use wealth Ability may take you to the top but it takes Character to stay there Nothing is impossible, if attempted with nobility


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BIBLOGRAPHY and REFRENCES

http://en.wikipedia.org/wiki/Information_technologyhttp://www.rediff.com/money/2008/jul/17sd1.htmhttp://www.livemint.com/2009/01/07214335/Truth-about-

Satyam-rise-and-f.html

http://knowledge.wharton.upenn.edu/india/article.cfm?articleid=4344

http://www.thehindubusinessline.com/2009/01/14/stories/2009011450020800.htm

http://www.satyamscam.info/http://satyamscam.in/2009/03/govt-to-provide-help-to-cbi-in-

satyam-scam-case/

http://www.blonnet.com/2009/01/12/stories/2009011251130600.htm

http://www.blonnet.comMAGAZINE

NEWS PAPER

Documents

Sat Yam Project (2003 Word)