Satyam does an Enron!

When I had posted earlier that be ready for more financial frauds, it was least expected that it would come from Indian shores. And that too from a company in a sector (Information Technology) which is highly respected worldwide. The company found of fraud – Satyam Computer Services Ltd. is no less a name. It was part of the elite club and these four companies were always mentioned in the same breath- Infosys, TCS, Wipro and Satyam. Mostly Economics stayed away from the news as focus was on equally breath taking events in world economy. The fraud deserves a post.

Satyam’s chief Ramalinga Raju admits to corporate fraud in what has been a breathtaking pace of events. Satyam has been cut into pieces right from the infamous Maytas deal and now this admission of corporate fraud. The letter of Raju to board of directors exposes the fraud.

  • For the Septemeber quarter we reported a revenue of Rs 2700 cr and an operating margin of Rs 649 cr (24% of revenues) as against the actual revenues of Rs 2112 cr and an actual operating margin of Rs 61 cr (3% of revenues). This has resulted in artificial cash and  bank balances going up by Rs 588 cr in Q2 alone.
  • The gap in balance sheet has arisen on account of inflated profits over a period of last several years
  • Every attempt to eliminate the gap failed
  • As promoters had small % of equity, concern was poor performance would result in take-over
  • The aborted Maytas deal was an attempt to fill fictitious assets wth real ones.
  • Once Satyam’s problem was solved, it was hoped that Maytas’ payments could be delayed. But that was not to be. What followed in the several days is common knowledge…..

So much so for Satyam which means truth in Sanskrit! It is a remarkable story.  (By the way I also read Maytas is Satyam spelled backwards!) Satyam also won

All this takes my memory back to Enron days where we saw a spectacularly rising  company falling equally spectacularly. Quite a bit if similarity-  Cooked balance sheets, a superb board of directors (see Enron’s and see Satyam’s resigned Board members) and  current ones) and complete ignorance of basics. Another similarity is Enron was known for its strategy before it collapsed and it was part of every management strategy book. Satyam on the other hand won Golden Peacock award for Corporate Governance.  Can anyone beat that as recent as 2008!!  (Golden Peacock is London based organisation formed by Institute of Directors in 1991 to give boost to Indian Industry.)

There is a difference though as Enron was much bigger and in vogue than Satyam and the fraud in Enorn was much larger (at least till now; Enron has USD 25 billion of assets at time of bankruptcy; We don’t know whether Satyam would follow the path). Another difference is in Enron there was a whistle blower – Sherron Watkins. I am not aware of any Satyam whistle-blower.

This crisis has led to a lot of questions on role of regulators, credit rating agencies, CEOs etc. Now, I guess with this fraud the time to move to role of independent directors, equity research analysts and auditors.

  • It is paiful to download Satyam’s Annual reports so am not sure who the auditors have been. This report says it is a biggie for 2007-08. I also chekced old reports from SEBI’s EDIFAR website (it isn’t it updated as it doesn’t have reports from 2004 onwards) which says the biggie was the auditor in 2002 , 2003 and 2004 as well. I am not sure what to say.
  • I have seen 2 reports of Satyam from top research houses as latest as Aug/Sep 2008 and both recommend a guess what – Buy. Someone tells me this morning some brokerage house upgraded Satyam! On a serious note, it is ok to miss your price targets, but if frauds can’t be found research needs to be questioned. And this was a continuous fraud as Raju himself points profits were inflated for many years now. So, there is no escaping from this.
  • Independent directors – Well, am not sure what to say on this. Satyam had all who’s who on its board and this is quite shameful now. They were unaware of frauds all the while. It has some real prominent names:

Prof. Krishna G Palepu (Harvard Prof who teaches how to improve corporate boards! – resigned)
Vinod K Dham (Inventor Pentium – resigned)
M. Rammohan Rao (ISB Dean – resigned)
M Srinivasan (another academic – resigned)
V S Raju (former director of IIT Delhi – still there)
T R Prasad (former union cabinet secretary – still there)

What is going on? I r’ber reading Palepu and his management theories . Here is research on the amount of money the independent directors made.

Satyam was the last thing you needed in already battered equity markets. The focus now shifts on who is hiding what? It will be really tough going from here.


1) Satyam is in BSE 30 and NSE -50 and SEBI seems to have completely missed it.
2) Satyam is listed in NASDAQ. So even SEC seems to have bitten the bullet despite Sarbanes Oxley Act in place. I am equally interested to know the stance of SEC which is facing enough troubles already.

I was also thinking about what Raju mentions in his letter:

Once Satyam’s problem was solved, it was hoped that Maytas’ payments could be delayed. But that was not to be. What followed in the several days is common knowledge…..

It was pretty much a Ponzi Scheme. The company was waiting for money to come from somewhere to pay for Maytas deal and hoping the bandwagon continued. You keep paying from monies raised from somehere else..this is what a Ponzi scheme is….


21 Responses to “Satyam does an Enron!”

  1. Janit Says:

    Whatever is happeningis saddening for one and all. Please check my blog at for Raju’s resignation letter and other inside information.

  2. Mr Maytas Also Scammed Says:

    Raju ban gaya gentleman !!!

    After cheating and lying to the whole world for years, Mr Raju came out with this confession. I wonder what he and his family has cooked at MAYTAS. As a shareholder in MAYTAS, I would like the Raju family to exit the business and relocate to a our India Holiday resort – Tihar Jail.

  3. Raja Says:

    It is PWC that has been the statuary auditor for the past 6 years.


  4. sarang Says:

    Satyam’s auditors are PriceWaterHouseCooper !!!

  5. India’s biggest corporate scandal in history! Satyam chief resigns, admitting 823-million-dollar fraud !! « PRAKHAR AGRAWAL’S TECH BLOG Says:

    […] 4) Satyam does an Enron! : […]

  6. Rohit Says:

    There is 5000cr of CASH & BANK balance ‘non-existant’.

    How can PriceWaterhouse have missed that.

    Cash is counted and Bank balances are certified by Banks.

    PWC and its partners MUST have been a part of the fraud, and must be criminally prosecuted.

    The regulators and investors believe audited balance sheets.

  7. Ravindra Says:

    kya raju bhai. ye kya kiya. employee ka to dhayaan rakhna tha employee to apke bachee ki mafik hoto hai dhayan rakhna tha bhai bacha logo ka.

  8. aditya Says:

    Its a correct manifestation of what’s happening in the name of corporate governance and the relationship the society has with the corpotatres as well as the governments(who represent common public domains&interests)

    See, Mr.Raju has been enjoying the shareholders money and chaeted them like this,…….

    He has kept the bright careers of tens of thousands of highly qualified and energetic engineeers and managers.

    One has to even doubt about the contractual privacy clauses regarding Satyam,s clients( UUPch,, World bank story is already out there ..)

    The big question is how much he has benfitted by being the Chairman of Satyam( with little over 4-5% holding).

    look at the list..

    He has been always at an arms length with the most powerful politicians/rulers/officials/bankers(psu)..

    Has got many contracts for his sons operations in Maytas Infra, Maytas Properties..

    Several SEZs were sanctioned.

    Thousands of acres of land has been bought in all means(either with money of this evoporation happened or with the influence by being Satyam,s)

    Hyderabad Metro project has been fabricated in such a way to corner prime lands( which the govt. is forcibly taking from individual owners and handing over to the Maytas) and make real estae and other businesses, instead of running a transport operations.

    Hundreds of villages and vast sea shore has been taken by their gang to colonise the Kakinada and other coastal parts of AP.

    There is no end to this story!!!

    Now, whats the SEBI doing??
    What Palepu’s and Horward professors preaching on the boards like satyam??

    If SEBI represents the third world ignorance and incompetency, then SEC of US ??? Is it benfitting by such collapses in countries like India??

    Is there any political party, which has not praised him or patronised his operations.

    As per Drucker’s advise all the problems have answers in businesses, and pose new opportunities.

    Which Raju/Rao/reddy has to take the entreprenuer’s award for entering such businesses that solve the present crisis??

    The glorious hundred years is nothing but Satyams, enrons, Madoffs, Harshads etc..

    These are some elements, which are just surfaced, hence only a eyewash activity.

    These Satyams are very much part of the systems that are ruling and thriving. One Satyam is just a lie. Its all Satyams around the world, including India.

    To sum up,

    Market theory failed,
    SEC facilitated to go global,
    SEBI is just a mark,
    Govt’s at all levels are happy partners,
    Customer first is nothing but, Satyam is the customer of foolish public,
    Global 4 failed miserably in auditing.

    Lets act, how??? Can we get anything???

    Ask for reurn of all the properties he has built for his sons and associates.
    Take back all lands given to him/affiliates/relatives/friends.
    Return the lands from so called projects to the original owners

    Who has to fight??

    Agencies, who are losing thier relavance, due to Satyams,
    People , who lost out lands in the schemes of raju and govt.s
    People, who believe in free markets,
    Lacs of people related to the employees and associate,
    Customers, who have exposed their information/systems/businesses/markets, by believing and paying them
    (This is not known to you, how bigger fraud must have happened with all your submissions)

    Small piece of advise, He is also close pal of Clinton/Bush etc.
    (Search net for their joint photographs)

    You win by fighting or lose for all!!!

    All the very best.

    You are welcome to look my views as above and comment on my comments!

  9. vigyan Says:

    Few months back, When i saw the maytas – hyd metro deal, i felt that the deal is very good.. where the maytas will build,operate and maintain the metro rail system, in proposed routes by govt.. they will get the land from govt…
    the model of operation is – they pay in turn to govt 35,000 crore in 35 years, for this deal… they get this by charges and ads displayed on metro… its like highway and toll gates..
    so if they are paying 35K crore to govt, how much maytas would be getting???

    then i thought it would be nice if satyam get maytas metro project for design and IT.. that would be a big project for satyam… like GE has its US metro transport projects with satyam…
    transport projects are really big ones, and most beneficial ones…
    later i came to know that satyam is doing maytas project… and one of my colleague is into that project…

    ramalinga raju has started EMRI(108 service), and till one half year back he was running it by his own money.. later he expanded services to other cities in AP and now to many other states…
    last year in satyam annual day meeting, ramalinga raju spoke about EMRI and said it is doing very well and saving lot of lives… now EMRI is shared with govt. also…
    all IT services for EMRI, will be provided by satyam.. including vehicle tracking, maintaining routes, hospital information etc… so if EMRI gets bigger satyam gets more revenue from EMRI…

    so ramalingaraju developed different projects in home country such that, they will benefit satyam in a good way… So even if US gets into recession, there are many other projects that are supporting satyam very well, like for coming FIFA satyam is official IT sponsor, and satyam expanded to may other parts of europe, africa etc…

    so few days back, when i heard satyam maytas aquisition, i felt it was a very good deal… seeing the bright future of maytas and its infrastructure projects, and his relation with YSR, I thought satyam will be benefited most, as it is investing in infrastructure company in a developing country, where much scope is there for growth.. so right now satyam’s profits can be shared with maytas in construction phase and maytas can share its profit in later stage, when it is fully operating… I thought this would make satyam very big….

    Just a day later the shares prices went down by 50% and investors made big comments on board, and deal was taken back…
    investors and media said, how can a board agree to buy a property that is held by raju family and why the maytas was valued at 1.2billion…
    and they said it wil be a injection of satyam’s cash reserve into raju’s family…
    some said what raju knew abt infra, instead it is good for him to continue with software…

    But maytas is having good projects in hand and a land bank of 6000 acres, so the valuation is right, may be it is a bit over valued, but that should be accepted, seeing the future scope…
    When raju started software in india 20 years back, when not all people realised the growth potential, investors encouraged him in later stages… and raju is well known in AP as a rich raju family with lots of farms and lands…
    why did he get into software business??? its because he believed in the growth of software service industry…
    now when he believed, in infrastructure, which is obviously a big thing in developing country, investors dumped him…
    for example caterpillar is such a big company now, because it did the right thing when US was developing – it sold earth moving machines for all infrastructure that was being built..

    I felt raju will resign the board of directors of satyam and will concentrate more on maytas…
    Few days back, the same thing happenend… there was news that many directors resigned and raju also submitted his resignation…

    Now today when i saw the raju’s resignation letter… i was shocked, not because of what he stated in that letter about showing extra profits and the differences in cash reserves, but bcoz raju himself saying this out…
    now everyone is convinced why raju wanted the maytas deal – bcoz raju said there are cash differences so they wanted to balance this, so they overvalued maytas and tried buy it…

    Why he has to say this out now?? I think, there are some cash differences from actual to books, but now he has created more cash differences by generating some documents… so all the cash differences he has shown extra might be taken by RAJU… in this way he got money for the great effort put by him, for building one of India’s top 4 software service industry…

    Now since he has lot of black money (extra cash differences shown by him), he can win in any case against him, even CBI probe will be taken care by YSR, and raju can concentrate fully on MAYTAS and make it a leading infrastructure company in India and soon in world(consdidering the potential of infrastructure in India-most emerging powerful nation)… since in India to get big projects, we need to spend lot of black money, now that raju has it, he will soon become successfull with Maytas…

    What do you think??

    (for custom design t shirts)

  10. General Cyberlord Says:

    Well, deed is done. Satyam went out to become Fraudyam. God saved me from joining that company. It would have ruined my yet to kickstart career.

    SATYAM == MAYTAS(reverse of SATYAM)

  11. zenga Says:

    Well, corporate mis-governance and the lack of oversight really don’t respect geographical boundaries. I am actually surprised that we have not seen more cases like Satyam come out of India in earlier years. The economic boom over the last decade is the perfect breeding ground for such cases, so in my opinion, I am actually quite pleased if this remains an isolated case. Realistically though, I will not be surprised if Mr. Raju’s actions cascade like a domino effect, and we have a slew of such hidden ghosts coming out of the closet in the near future. No doubt, a real shame…

  12. stockresearch52 Says:

    Is Satyam episode a Waterloo in India’s corporate governance ?

  13. Says:

    Blogring for institute+of+directors…

    Related Blog Entries…

  14. Blog Round-Up: 3 Great Reads « fortySouth Says:

    […] financial scandals! The CEO of Satyam, a large technology company in India, admits to pulling off an Enron. Also, read all about Bernie Madoff, Ponzi-schemer and fraudster extraordinaire, […]

  15. badrirag Says:

    just check out the winners and losers (part 1) of the Satyam fiasco at

  16. Satyam Scam Says:

    Satyam Scam by far Largest Corporate Scam in India Inc.

  17. Krishna Palepu still making Corporate Boards more effective « Mostly Economics Says:

    […] Palepu still making Corporate Boards more effective By Amol Agrawal Krishna Palepu the independent director of Satyam has been criticised severely after the fraud. (see this, this). People have asked him to resign […]

  18. ISB admission services Says:

    nice information …thank u

  19. world cities Says:

    Is Satyam episode a Waterloo in India’s corporate governance ?

  20. travelling Says:

    How can PriceWaterhouse have missed that.

  21. wholesale clothing men Says:

    Sam-Its the lies and truth, mixed with fantasy and reality in their movies and propaganda. The difference is, you know truth, so you can see the lies.

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