On 24 June 1987, Satyam Computer Services Ltd was incorporated by two brothers, namely B Rama Raju and B Ramalinga Raju, as a private limited company with just 20 employees for providing software development and consultancy services to large corporations. ln 1991, the company was converted into public limited company was the first Indian internet company listed on NASDAQ. Crisis in Satyam began when on December 16th 2008, it's chairman Mr. Ramalinga Raju announced a $1.6 billion bid for two Maytas companies: Maytas Infrastructure Ltd and Maytas Properties ltd.
Share prices sank by 55% on concern about Satyam corporate governance and another shocker come from the World Bank when it announced on December 23, 2008 that Satyam has been barred from business with World Bank for eight years and charged the company with data theft and bribing the staff. Share prices fell another 14% to the lowest in over 4 years.
At last on January , 2009, B Ramalinga Raju announced confession of over Rs. 7,800 crore financial fraud and he resigned as a chairman of Satyam. He revealed in his letter that is attempt to buy Maytas companies was his last attempt to “fill fictitious assets with real ones.” Raju accepted that Satyam had reported a revenue of rupees to Rs. 2,700 crore and operating margin of Rs. 649 crore while the actual revenue was Rs. 2,112 crore and the margin was Rs. 61 crore.
Important facts
Satyam computers was launched in Hyderabad on June 24, 1987
In 1991, the company was registered in Bombay stock Exchange with an IPO oversubscribed 17 times. ln 2001, the company also get listed on NYSE.
Satyam computers announced buying a hundred percent stake in two companies by the chairman Rama Linga Raju's sons- Maytas properties and Maytas infra in December 16, 2008.
Satyam demanded an apology and a full explanation from the World Bank for the statements which damaged investor confidence.
Independent director at Satyam resigned following the World Bank’s critical statement on December 26, 2008, following which, two days later, three more directors quit.
Promoters stake fell from 8.64% to 5.13% as institutions with whom the stake was pledged, sold their shares.
On January 22, 2009 Satyam CFO, Srinivas Vadlamani confessed to having inflated the number of employees by about 10,000. This helped in drawing around Rs. 20 crores per month from the fictitious salary accounts.
Flaws in governance:
Unethical conduct
Board the CEO and CFO were charged for putting self-interests ahead of the companies interest. The satyam founder B Rama Linga Raju always wanted to make money by any means by avoiding paying Taxes and cooking up books.
Insider trading
As per the investigation report relating to satyam scam it was a found that the promoters indulge in most horrible kind of inside trading of the company shares to raise money for building a large land bank .The top executive are actively selling large portion of their shareholdings in the company a few months before the confession of scandalous fraud.
Fake accounting
On examination of fixed deposit statements has stated by satyam, it was found that a large number of fixed deposit did not exit as per the bank records. Falsification of fixed deposit was done, by mainly using five banks, namely HDFC Bank, ICICI Bank, HSBC Bank, BNP Paribas bank and Citi bank.