Satyam scandal
Encyclopedia
The Satyam Computer Services scandal was publicly announced on 7 January 2009, when Chairman Ramalinga Raju
confessed that Satyam's accounts had been falsified.
Raju had appointed a task force to address the Maytas situation in the last few days before revealing the news of the accounting fraud. After the scandal broke, the then-board members elected Ram Mynampati
to be Satyam's interim CEO. Mynampati's statement on Satyam's website said:
On 10 January 2009, the Company Law Board decided to bar the current board of Satyam from functioning and appoint 10 nominal directors. "The current board has failed to do what they are supposed to do. The credibility of the IT industry should not be allowed to suffer." said Corporate Affairs Minister Prem Chand Gupta. Chartered accountants regulator ICAI issued show-cause notice to Satyam's auditor PricewaterhouseCoopers
(PwC) on the accounts fudging. "We have asked PwC to reply within 21 days," ICAI President Ved Jain said.
On the same day, the Crime Investigation Department (CID) team picked up Vadlamani Srinivas, Satyam's then-CFO
, for questioning. He was arrested later and kept in judicial custody.
On 11 January 2009, the government nominated noted banker Deepak Parekh
, former NASSCOM
chief Kiran Karnik
and former SEBI member C Achuthan to Satyam's board.
Analysts in India have termed the Satyam scandal India's own Enron scandal
.. Some social commentators see it more as a part of a broader problem relating to India's caste-based, family-owned corporate environment .
Immediately following the news, Merrill Lynch
(now a part of Bank of America
) and State Farm Insurance
terminated its engagement with the company. Also, Credit Suisse
suspended its coverage of Satyam.. It was also reported that Satyam's auditing firm PricewaterhouseCoopers will be scrutinized for complicity in this scandal. SEBI, the stock market regulator, also said that, if found guilty, its license to work in India may be revoked. Satyam was the 2008 winner of the coveted Golden Peacock Award for Corporate Governance under Risk Management and Compliance Issues, which was stripped from them in the aftermath of the scandal. The New York Stock Exchange
has halted trading in Satyam stock as of 7 January 2009. India's National Stock Exchange
has announced that it will remove Satyam from its S&P CNX Nifty 50-share index on 12 January. The founder of Satyam was arrested two days after he admitted to falsifying the firm's accounts. Ramalinga Raju
is charged with several offences, including criminal conspiracy, breach of trust, and forgery.
Satyam's shares fell to 11.50 rupees on 10 January 2009, their lowest level since March 1998, compared to a high of 544 rupees in 2008. In New York Stock Exchange Satyam shares peaked in 2008 at US$ 29.10; by March 2009 they were trading around US $1.80.
The Indian Government has stated that it may provide temporary direct or indirect liquidity support to the company. However, whether employment will continue at pre-crisis levels, particularly for new recruits, is questionable
.
On 14 January 2009, Price Waterhouse, the Indian division of PricewaterhouseCoopers
, announced that its reliance on potentially false information provided by the management of Satyam may have rendered its audit reports "inaccurate and unreliable".
On 22 January 2009, CID told in court that the actual number of employees is only 40,000 and not 53,000 as reported earlier and that Mr. Raju had been allegedly withdrawing INR 20 crore
rupees every month for paying these 13,000 non-existent employees .
named A. S. Murthy as the new CEO of the firm with immediate effect. Murthy, an electrical engineer, has been with Satyam since January 1994 and was heading the Global Delivery Section before being appointed as CEO of the company. The two-day-long board meeting also appointed Homi Khusrokhan (formerly with Tata Chemicals
) and Partho Datta, a Chartered Accountant
as special advisors .
C.P Gurnani is the current CEO.
Ramalinga Raju
Ramalinga Raju founded Satyam Computers in 1987 and was its Chairman until January 7, 2009 when he resigned from the Satyam board after admitting to cheating six million shareholders...
confessed that Satyam's accounts had been falsified.
Aftermath
Ramalingam Raju alongwith 2 other accused of the scandal, had been granted bail from Supreme court on 4th November 2011 as the investigation agency CBI failed to file the chargesheet even after more than 33 months of Raju been arrested.
Raju had appointed a task force to address the Maytas situation in the last few days before revealing the news of the accounting fraud. After the scandal broke, the then-board members elected Ram Mynampati
Ram Mynampati
Ram Mynampati is an Indian business executive. He was a board member of Satyam Computer Services until January 2009, when news of an accounting fraud at Satyam broke. He was briefly the interim CEO after the then-Chairman and CEO Ramalinga Raju admitted to the accounting fraud and stepped down. He...
to be Satyam's interim CEO. Mynampati's statement on Satyam's website said:
"We are obviously shocked by the contents of the letter. The senior leaders of Satyam stand united in their commitment to customers, associates, suppliers and all shareholders. We have gathered together at Hyderabad to strategize the way forward in light of this startling revelation."
On 10 January 2009, the Company Law Board decided to bar the current board of Satyam from functioning and appoint 10 nominal directors. "The current board has failed to do what they are supposed to do. The credibility of the IT industry should not be allowed to suffer." said Corporate Affairs Minister Prem Chand Gupta. Chartered accountants regulator ICAI issued show-cause notice to Satyam's auditor PricewaterhouseCoopers
PricewaterhouseCoopers
PricewaterhouseCoopers is a global professional services firm headquartered in London, United Kingdom. It is the world's largest professional services firm measured by revenues and one of the "Big Four" accountancy firms....
(PwC) on the accounts fudging. "We have asked PwC to reply within 21 days," ICAI President Ved Jain said.
On the same day, the Crime Investigation Department (CID) team picked up Vadlamani Srinivas, Satyam's then-CFO
Chief financial officer
The chief financial officer or Chief financial and operating officer is a corporate officer primarily responsible for managing the financial risks of the corporation. This officer is also responsible for financial planning and record-keeping, as well as financial reporting to higher management...
, for questioning. He was arrested later and kept in judicial custody.
On 11 January 2009, the government nominated noted banker Deepak Parekh
Deepak Parekh
Deepak Parekh is the Chairman of Housing Development Finance Corporation, India's leading housing finance company. A pioneer in mortgage finance, he has enabled scores of Indian middle class people to own their houses or apartments through affordable loans...
, former NASSCOM
NASSCOM
The National Association of Software and Services Companies of IT software and services related activities for use of both the software developers as well as interested companies overseas....
chief Kiran Karnik
Kiran Karnik
Kiran Karnik is a prominent figure and guiding force behind the Indian outsourcing industry. He has formerly been the president of NASSCOM , and is now one of its trustees. Mr...
and former SEBI member C Achuthan to Satyam's board.
Analysts in India have termed the Satyam scandal India's own Enron scandal
Enron scandal
The Enron scandal, revealed in October 2001, eventually led to the bankruptcy of the Enron Corporation, an American energy company based in Houston, Texas, and the dissolution of Arthur Andersen, which was one of the five largest audit and accountancy partnerships in the world...
.. Some social commentators see it more as a part of a broader problem relating to India's caste-based, family-owned corporate environment .
Immediately following the news, Merrill Lynch
Merrill Lynch
Merrill Lynch is the wealth management division of Bank of America. With over 15,000 financial advisors and $2.2 trillion in client assets it is the world's largest brokerage. Formerly known as Merrill Lynch & Co., Inc., prior to 2009 the firm was publicly owned and traded on the New York...
(now a part of Bank of America
Bank of America
Bank of America Corporation, an American multinational banking and financial services corporation, is the second largest bank holding company in the United States by assets, and the fourth largest bank in the U.S. by market capitalization. The bank is headquartered in Charlotte, North Carolina...
) and State Farm Insurance
State Farm Insurance
State Farm Insurance is a group of insurance and financial services companies in the United States. The company also has operations in Canada....
terminated its engagement with the company. Also, Credit Suisse
Credit Suisse
The Credit Suisse Group AG is a Swiss multinational financial services company headquartered in Zurich, with more than 250 branches in Switzerland and operations in more than 50 countries.-History:...
suspended its coverage of Satyam.. It was also reported that Satyam's auditing firm PricewaterhouseCoopers will be scrutinized for complicity in this scandal. SEBI, the stock market regulator, also said that, if found guilty, its license to work in India may be revoked. Satyam was the 2008 winner of the coveted Golden Peacock Award for Corporate Governance under Risk Management and Compliance Issues, which was stripped from them in the aftermath of the scandal. The New York Stock Exchange
New York Stock Exchange
The New York Stock Exchange is a stock exchange located at 11 Wall Street in Lower Manhattan, New York City, USA. It is by far the world's largest stock exchange by market capitalization of its listed companies at 13.39 trillion as of Dec 2010...
has halted trading in Satyam stock as of 7 January 2009. India's National Stock Exchange
National Stock Exchange of India
The National Stock Exchange is a stock exchange located at Mumbai, Maharashtra, India. It is the 9th largest stock exchange in the world by market capitalization and largest in India by daily turnover and number of trades, for both equities and derivative trading. NSE has a market capitalization...
has announced that it will remove Satyam from its S&P CNX Nifty 50-share index on 12 January. The founder of Satyam was arrested two days after he admitted to falsifying the firm's accounts. Ramalinga Raju
Ramalinga Raju
Ramalinga Raju founded Satyam Computers in 1987 and was its Chairman until January 7, 2009 when he resigned from the Satyam board after admitting to cheating six million shareholders...
is charged with several offences, including criminal conspiracy, breach of trust, and forgery.
Satyam's shares fell to 11.50 rupees on 10 January 2009, their lowest level since March 1998, compared to a high of 544 rupees in 2008. In New York Stock Exchange Satyam shares peaked in 2008 at US$ 29.10; by March 2009 they were trading around US $1.80.
The Indian Government has stated that it may provide temporary direct or indirect liquidity support to the company. However, whether employment will continue at pre-crisis levels, particularly for new recruits, is questionable
.
On 14 January 2009, Price Waterhouse, the Indian division of PricewaterhouseCoopers
PricewaterhouseCoopers
PricewaterhouseCoopers is a global professional services firm headquartered in London, United Kingdom. It is the world's largest professional services firm measured by revenues and one of the "Big Four" accountancy firms....
, announced that its reliance on potentially false information provided by the management of Satyam may have rendered its audit reports "inaccurate and unreliable".
On 22 January 2009, CID told in court that the actual number of employees is only 40,000 and not 53,000 as reported earlier and that Mr. Raju had been allegedly withdrawing INR 20 crore
Crore
A crore is a unit in the Indian number system equal to ten million , or 100 lakhs. It is widely used in India, Bangladesh, Nepal, and Pakistan....
rupees every month for paying these 13,000 non-existent employees .
New CEO and special advisors
On 5 February 2009, the six-member board appointed by the Government of IndiaIndia
India , officially the Republic of India , is a country in South Asia. It is the seventh-largest country by geographical area, the second-most populous country with over 1.2 billion people, and the most populous democracy in the world...
named A. S. Murthy as the new CEO of the firm with immediate effect. Murthy, an electrical engineer, has been with Satyam since January 1994 and was heading the Global Delivery Section before being appointed as CEO of the company. The two-day-long board meeting also appointed Homi Khusrokhan (formerly with Tata Chemicals
Tata Chemicals
Tata Chemicals Ltd is a Tata Group Company based in Mumbai. The company is one of the largest chemical companies in India with significant operations in India and Africa.-Plant locations:*Mithapur *Babrala *Nanded...
) and Partho Datta, a Chartered Accountant
Chartered Accountant
Chartered Accountants were the first accountants to form a professional body, initially established in Britain in 1854. The Edinburgh Society of Accountants , the Glasgow Institute of Accountants and Actuaries and the Aberdeen Society of Accountants were each granted a royal charter almost from...
as special advisors .
Acquisition by Mahindra Group
On 13th April 2009, via a formal public auction process, a 46% stake in Satyam was purchased by Mahindra & Mahindra owned company Tech Mahindra, as part of its diversification strategy. Effective July 2009, Satyam rebranded its services under the new Mahindra management as "Mahindra Satyam" with a new corporate website www.MahindraSatyam.com.C.P Gurnani is the current CEO.