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Satyam Fraud

Satyam Fraud. Introduction. Satyam Computer Services Ltd. was a consulting and information technology services company based in Hyderabad, India . It was found in 1987 by B.Ramalinga Raju .

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Satyam Fraud

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  1. Satyam Fraud

  2. Introduction • Satyam Computer Services Ltd. was a consulting and information technology services company based in Hyderabad, India . • It was found in 1987 by B.RamalingaRaju. • The company offers information technology (IT) services spanning various sectors, and is listed on the New York Stock Exchange and Euronext • It was considered as an icon among the IT companies and at one point had over a billion dollar revenue

  3. Satyam's network covers 67 countries across six continents. • The company employs 40,000 IT professionals across development centers in India, the United States, the United Kingdom, the UAE, Canada, Hungary, Singapore, Malaysia, China, Japan, Egypt and Australia. • It serves over 654 global companies, 185 of which are Fortune 500 corporations.

  4. Satyam has strategic technology and marketing alliances with over 50 companies. • Apart from Hyderabad, it has development centers in India at Bangalore, Chennai, Pune, Mumbai, Nagpur, Delhi, Kolkata, Bhubaneswar, and Visakhapatnam.

  5. Satyam Maytas Fiasco • Satyam Computers had on  December 16, 2008,  announced that it will acquire two group firms - Maytas properties and Maytas Infra • The BOD of Satyam had approved the founder’s proposal to buy 51 per cent stake in Maytas Infrastructure and 100 % in Maytas Properties.

  6. The total outflow for both the acquisitions was expected to be US$ 1.6 bn comprising of US$ 1.3 bn for the 100% stake in Maytas Properties and US$ 0.3 bn for the 51% stake in Maytas Infra. • This is the move that sparked a row over alleged violation of corporate governance laws. • This deal is not profitable for investors .So after this announcement they started to raise their voices against the deal

  7. Maytas Infra • The company is run by the sons of RamalingaRaju • It was started in the late 1980’s by RamalingaRaju • The main reason for the debacle of Maytas Infra is due to the debacle of Satyam

  8. Maytas Properties Ltd • One of the reasons for the debacle of Maytas properties is the ongoing economic slowdown • The company has huge land banks and the prices have dropped down in the real estate significantly

  9. Satyam’s 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. • feeling that in the recent times it is difficult to make a strategic deal with other IT companies.

  10. Reaction of Investors after the announcement of accusation of Maytas

  11. Result of Investor’s Reaction • It results that part of investors succeeded to thwart an attempt by the minority-shareholding promoters to use the firm’s cash reserves to buy out two companies owned by them — Maytas Properties and Maytas Infra. • That aborted attempt at expansion precipitated a collapse in the price of the company’s stock and a shocking confession of financial manipulation and fraud from its chairman, B. RamalingaRaju

  12. WHY HE FAILED……???? • The promoters decided to inflate the • revenue and profit figures of Satyam. • In the event, the company had a • huge hole in its balance sheet, consisting of non-existent assets and cash reserves that have been recorded and liabilities that are unrecorded So to fill up this gap…….. • Company announced Acquisition of 51% stake in MaytasInfra and 100% stake in Maytas Properties on 16th Dec 2008 but were unsuccessful.

  13. The deal was not profitable for investors • Investors dumped Satyam’s stock and threatened action against the management. • Satyam Computer ADRs took a huge beating. • This was mainly done to hide the irregularities in the accounts of Satyam • It is also said the close association with the political leaders is one of the reasons.

  14. Confession • . • He tried to fill the gap b/w actual profits of the company and the profits that were shown in records, balance sheets etc. and also tried to cope up the situation till last minute . But now the situation were beyond his hands and therefore he confessed the frauds(on Jan 7, 2009) made by him by showing inflated profits in the balance sheet • According to the‘ confessional’ statement of Mr. Raju, the balance sheet shortfall was more than Rs.7000 crore. • The following statement he made in his confession letter – “Every attempt to eliminate the (balance sheet) gap failed.

  15. FINANCIAL SHENANIGANS

  16. WHAT WENT WRONG? • Simple manipulation of revenues and earnings To show superior performance • Raising fictitious bills for services that were never rendered. • To increase the Cash & bank balance correspondingly. • Operating profits were artificially boosted from the actual Rs 61 crore to Rs 649 crore.

  17. AND HOW….????? • Its financial statements for years were totally false, cooked up and... • Never had Rs 5064 crores (US$ 1.05 Billion) shown as cash for several years. • Its liability was understated by $ 1.23 Billions • The Debtors were overstated by 400 millions plus. • The interest accrued and receivable by 376 Millions never existed

  18. CURRENT ASSESTS ACTUAL CASH IN BANK WAS 321 INFLATED 5040cr 2651.6 5312.62 ACTUAL DEBT WAS 2161 OVERSTATED 490 Cr 376 NO ACCRUED INTEREST 376 Cr LIABILITIES UNDERSTATED 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 5040+376+1230+ 490= 7136

  19. ACTUAL OPERATING MARGIN 61 Cr REPORTED-649 Cr( CREATED AN ARTIFICIAL REVENUE OF 588) GROWTH IN THE OPERATING PROFIT

  20. INFLATING THE PROFIT AND REVENUE

  21. Satyam scam: So who is to blame? • Who is guilty in this sordid state of events? • Raju is by far the father of this fraud. • But there were others who are also culpable.

  22. Satyam's auditors • So what were the auditing company,PricewaterhouseCoopers, doing? • PwC has written a letter to the BOD of Satyam that its audit may be rendered "inaccurate and unreliable" due to the disclosures made by Satyam's (ex) Chairman.

  23. Is it real? How could Auditors miss the gaping hole when – • Auditors do bank reconciliation to check whether the money has indeed come or not. • They check bank statements and certificates. • So was this a total lapse in supervision or were the bank statements forged? No one knows yet. • The company officials said they relied on data from the reputed auditors.

  24. The promoters • Since the promoters, in this case, held only about 8 percent shares, their idea to push through the Maytas acquisition deal was defeated by an angry lot of shareholders.

  25. Other company bigwigs • Satyam's CFO SrinivasVadlamani has already been arrested. • But could only two or three people have managed to cook the books for years of a company so large? Highly unlikely.

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

  27. The bankers • If the auditors were conned, it means that either the bank statement and certificates were forged • Satyam's banks -- ICICI Bank, HDFC Bank, Bank of Baroda, etc

  28. Directors and independent directors • Despite the shareholders not being taken into confidence, the directors went ahead with the management's decision.

  29. The government • 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.

  30. What Management could 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. • The image of the company could be revived by a series of press conferences highlighting the ongoing contracts with the clients. • It could also be merged with any other software company.

  31. Tech Mahindra wins bid for Satyam Scam • Tech Mahindra pay 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 bidder for the company on April 13, 2009. • In India this moment was full of praise for the manner and speed with which the reconstituted board of Satyam Computer Services found a strategic investor . • This would send a strong signal globally that the country can respond well and fast to financial crisis.

  32. Don’t try this at own Thank you…

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