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http://www.businessweek.com/blogs/globespotting/archives/2009/01/satyam_scandal.html
The terror attacks on Mumbai were just a tremor for the country’s tech industry compared to the shocks coming from the Satyam scandal. Earlier today, Ramalinga Raju, Satyam’s founder and longtime chairman, admitted in a letter to the board that he had been cooking the books for years to make up for revenue and profit shortfalls. Read the details in this report by my BW colleague, Manjeet Kripalani. In his letter, Raju wrote that the cover-up finally got the best of him: “It was like riding a tiger, not knowing how to get off without being eaten.”
This admission will have a crippling impact on Satyam. Its chances of getting new business are nil. Don’t expect its current customers to abandon the company overnight. That’s not easy in a tech services business where the operations of the client and service provider are so interwoven. On the other hand, it’s possible that the company may collapse financially, in which case clients will have no choice but to flee.

Which brings us to a bigger shock: This betrayal of trust could have a major impact on the entire Indian tech services industry. The industry has spent 20 years building up credibility with Western clients, but this disaster will make many US and European clients rethink their reliance on Indian outsourcing. Don’t expect offshore outsourcing to fall off a cliff, but there will be serious repercussions.

There’s another impact that most people won’t be aware of. Raju, through his Byrraju Foundation, has been a leader in bringing economic development to farm communities in his home state of Andhra Pradesh, and also in providing emergency medical services to people of the state state. Will all of this collapse now?

This guy seemed to be a model citizen. But all that is gone now. It’s a tragedy not just for him and the employees of Satyam, but for the entire country.

On the morning of Jan. 7,Ramalingam Raju, the chairman of troubled Indian IT outsourcingcompany Satyam Computer Services (SAY), sent a startling letter to his board and the Securities & Exchange Board of India. Raju acknowledged his culpability in hiding news that he had inflated the amount of cash on the balance sheet of India's fourth-largest IT company by nearly $1 billion, incurred a liability of $253 million on funds arranged by him personally, and overstated Satyam's September 2008 quarterly revenues by 76% and profits by 97%. After submitting his resignation, Raju ended his letter by apologizing for his inability to close what began as a "marginal gap between operating profits and the one reflected in the books of accounts" but grew unmanageable. "I am now prepared to subject myself to the laws of the land and face the consequences thereof," he wrote.
The letter shocked and angered corporate India, which has looked to IT executives as role models for a new breed of Indian entrepreneur. The benchmark Sensex stock index dropped 7.3% and Satyam shares fell nearly 78% on the day as investors fled in droves. Goldman Sachs (GS) suspended its recommendations on Satyam "because there is not currently a sufficient basis for determining an investment rating or price target for this company," Goldman analysts Julio Quinteros Jr. and Vincent Lin told investors. Earnings per share, warned JPMorgan (JPM) analysts in a report, "may be 70%-80% lower than reported numbers and consensus estimates for '09-'10." Satyam had become "India's Enron," said CLSA India analyst Bhavtosh Vajpayee, calling the case "an accounting fraud beyond imagination [and] an embarrassing and shocking episode in Indian corporate governance."
As executives at other Indian outsourcing companies nervously assess what impact the scandal will have on them, many industry observers now argue that the Satyam case will damage India's reputation as a reliable provider of IT services. Because of the Satyam scandal, they say, Indian rivals will come under greater scrutiny by regulators, investors, and customers. "The bubble is going to burst in terms of trust," says a fund manager in Hong Kong who has followed Satyam closely. Doubts about the reliability of Indian outsourcers are especially important, since customers often allow the Indian companies access to sensitive systems. "This industry doesn't just make widgets," the manager explains. "It's an intimate relationship." Certainly, says Gartner (IT) analyst Diptarup Chakraborti, "there will be caution in the short term, skepticism, and questioning." After all, "no one wants to do business with a known fraudster."

INVESTORS WANT ANSWERS

Industry executives are desperately trying to contain the fallout. "The decline in governance and institutions represents a serious challenge to India," says Rajeev Chandrashekhar, president of the Federation of Indian Chambers of Commerce and Industry. Wipro Technologies (WIT) Chief Financial Officer Suresh Senapaty, went on TV to say that Satyam's actions should not infect the entire Indian IT industry. And Mohandas Pai, head of human resources at Infosys (INFY) and the company's former chief financial officer, argued Satyam's behavior is atypical. "We wish the regulators will investigate and punish the guilty," he says. "But this is not representative of our industry." John McCarthy, vice-president of Forrester Research, allays some fears. "I look at Satyam as an isolated case, and don't think the developments would have any impact upon India's No. 1 position as an offshore location."
Still, investors and clients are going to want answers. For instance, they're demanding to know how Satyam's auditor, PricewaterhouseCoopers, endorsed the company's accounts. "Auditors' complicity in what seems to be a multiyear misstatement of financials will also be explored," said CLSA's Vajpayee in his Jan. 7 report. Already, India's Registrar of Companies had begun a probe into a failed acquisition last month by Satyam of companies run by Raju's two sons. Now the country's securities regulator will add its weight by investigating the PwC audit. PwC issued a statement saying it was examining the issue.
Raju's confession is the latest in a rocky ride for Satyam, its shareholders, and its stakeholders over the past year. The company's clients include multinationals such as Nestlé, General Motors (GM), and General Electric (GE). But in September, the World Bank banned Satyam from doing any of its work after it found Satyam employees had hacked into its system and gained access to sensitive information. It also did not renew their five-year contract. Satyam denied any wrongdoing. Then came a fresh blow on Dec. 16, when Raju announced the company would spend $1.6 billion to buy two infrastructure companies run by this sons, only to reverse the decision a few hours later under shareholder pressure. Satyam ADRs lost 50% of their value overnight. December also brought news of pending litigation by a former client, online mobile-payments service Upaid Systems, which filed a case of intellectual fraud and forgery against Satyam in 2007; a Texas court is scheduled to conduct a hearing on the case Jan. 7.

In India, the Raju family's non-IT activities had already been viewed with some suspicion, in particular a free emergency ambulance service Raju began in Hyderabad, where Satyam is based. Last year, public-interest activists filed a petition challenging the lack of transparency and arbitrariness in the award of ambulance-services contracts in 12 Indian states—all of which had been awarded to Raju's operation. In November the Supreme Court of India questioned the contracts and demanded an explanation, which could result in the contracts being canceled.

With Satyam's management focused elsewhere, business suffered. Clients complained about lack of attention, and many professional managers began to leave.

Angry Satyam investors' reaction to the botched acquisition led to talk of Satyam being a takeover target. A deal might have been interesting since, as Gartner's Chakraborti says, Satyam had been undergoing a "crisis of confidence, rather than a crisis of revenues." Before the shocking confession today from Raju, there was a long list of reported suitors for Satyam. They included HCL Technologies, Wipro, IBM (IBM), Hewlett-Packard (HPQ), Larsen & Toubro Infotech, Cognizant (CTSH), Cap Gemini (CAPP.PA), and even private equity players KKR and TPG. By Jan. 6, the Indian press added a new one—Tech Mahindra, a Pune-based software-services company focused on the telecom industry in which British Telecom (BT.L) has a 31% stake. Although most companies denied the rumors, on Jan. 6 an executive of a rival company told BusinessWeek that Satyam's value should be between $2.6 billion and $3 billion.

COMPETITION WILL JUMP IN

Now, just a day later, Satyam's value has plummeted. Tech Mahindra made a public statement that it would not be interested in acquiring Satyam "in the current environment." CLSA India valued the company, minus its debt, at $600 million. "What happens to Satyam now?" asked Mumbai-based research firm First Global in a note on Jan. 7. "With Satyam's operations failing to generate the required amount of cash, we believe that it will be impossible for the company to continue its operations." Satyam clients are likely to shift to other companies, First Global predicted, as Satyam's stock price continues to fall.
That leaves Ram Mynampati, the Satyam president whom Raju has appointed as interim chief executive, the difficult task of boosting morale. In a letter to Satyam's 53,000 employees, Mynampati reminded them that Satyam had top-notch clients and was acknowledged as one of the three best employers in India by both Hewitt (HEW) and Mercer (MERC), the international human resources firms. But "this quarter will be tumultuous for us," he said. "Rumors will abound and it would be fair to assume that competition will try and leverage it to their advantage."
The competition sure is trying. Already, Satyam customers are getting calls from other Indian IT providers offering their services. And life could get tough for Satyam's thousands of engineers and employees. Despite their valuable skills, IT companies are hiring fresh college grads over the more expensive, experienced hands. Still, with the IT business already suffering from the global downturn, a large competitor out of the way could mean more deals for Satyam's rivals—if they can overcome new doubts about the reliability of the country's IT industry.

http://business.rediff.com/slide-show/2010/jan/06/slide-show-1-one-year-after-the-satyam-scandal.htm
He belonged to a family of farmers, but always dreamt big. He worked his way to build one of India's top IT companies. It was a story that astonished the world. But the success story was short-lived. B Ramalinga Raju's rags-to-riches story went horribly wrong.

On January 7, 2009, B Ramalinga Raju confessed to orchestrating India Inc's biggest fraud.

"I am now prepared to subject myself to the laws of the land and face consequences thereof," Raju said in aletter to Sebi and the company's Board of Directors, while giving details of how the profits were inflated over the years and his failed attempts to 'fill the fictitious assets with real ones'.

On January 7, 2009, after Raju's shocking admission, India's fourth largest IT company, lost a staggering Rs 10,000 crore (Rs 100 billion) in market capitalisation as investors reacted sharply and dumped shares, pushing down the scrip by 78 per cent at the Bombay Stock Exchange.

"It was like riding a tiger not knowing how to get off without being eaten," Raju wrote in the letter.

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One year after the Satyam scandal...

Last updated on: January 6, 2010 19:53 IST
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The huge loss

The Central Bureau of Investigation (CBI) said the loss suffered by investors in the fraud may rise to a whopping Rs 14,000 crore (Rs 140 billion), instead of the initial estimate of Rs 7,800 crore (Rs 78 billion).

The CBI filed the second chargesheet in Satyam scam against B Ramalinga Raju, and others, including recently arrested internal auditor of the company V S Prabhakar Gupta.

The chargesheet was filed in the designated court in Hyderabad accusing Raju and Gupta under various sections of the Indian Penal Code for allegedly indulging in siphoning off money to tax-haven countries, including Mauritius.

As per the chargesheet, "the accused forged board resolutions and unauthorisedly obtained loans to the tune of Rs 1,220 crore (Rs 12.20 billion) for Satyam Computer.

"They also prepared fake invoices worth Rs 430 crore (Rs 4.30 billion)," the chargesheet said.

The chargesheet comes within days of the CBI team going to other countries to probe the alleged diversion of funds by Raju and re-routing back to India official sources said.

The funds were routed back to India via European nations as 'investments' in nearly 300 alleged fictitious companies floated in the name of his relatives, they said.

The CBI, which is probing the Rs 10,000 crore (Rs 100 billion) accounting fraud at Satyam Computer Services, has found during investigations that Raju had diverted big amounts to Mauritius from where the money was brought back to India via several European countries, they added.

The CBI has also charged B Ramalinga Raju, his brother B Rama Raju and eight others with creating fictitious customers and siphoning off Rs 430 crore (Rs 4.30 billion) from the IT firm.

They created fake customers and generated invoices against them in order to inflate revenues of Satyam Computer Services Limited to the tune of Rs 430 crore, incurring expenditure to the tune of Rs 65.88 crore (Rs 658.8 million).

Raju and his family-promoted firm Maytas Group, along with its other group companies, owe Rs 541 crore (Rs 5.41 billion

http://www.indianrealestateboard.com/forums/showthread.php/9397-Satyam-Scandal-and-its-impact-on-Indian-IT-and-Real-Estates/page5
Dec 17, 2008 12:59 pm
SATYAM – DEFIES ITS VERY OWN NAME [pic]By Ruma Dubey

Satyam means the truth. And Satyam Computers has defied the very name that it stands for. The way the Board of Directors and the promoters have tried to siphon off funds under the pretext of providing capex for the other two group companies – Maytas Infra and Maytas Properties has left the foreign fund managers completely stumped. There is a mood of complete distrust about India Inc and the general perception formed now is that all Indian companies openly flout rules of corporate governance and thus cannot be trusted. This is what Satyam has done – shroud the entire India Inc is a blanket of asatyam!

The first question which comes to mind is – how did the independent directors on the Board allow this to happen in the first place? The Board of Directors should first be made more accountable for this. Looking at the Rs.6,000 crore, which was lying in the balance sheet of Satyam, they probably salivated, thinking how it could earn them more, by merely lending it to another two group companies. But didn’t they think that they as Board of Directors were doing something so wrong? Apart from the core promoters, there are eminent names like Vinod Dham – father of Pentium;Professor Krishna G Palepu who is also on the Boards of Dr. Reddy's Laboratories Limited, Exeter Corporation, USA and Harvard Business School Publishing Co., USA; Prof. M Rammohan Raowho is the Dean of Indian School of Business (ISB); T. R. Prasad who apart from being a Cabinet Secretary has also been the Defence Secretary of the Government of India; Secretary, Industrial Policy and Promotion, Ministry of Industry; Chairman, Foreign Investment Promotion Board (FIPB); Secretary, Heavy Industry, and Chairman, Maruti Udyog Limited. And there is also Prof. V. S. Raju - former Director of the Indian Institute of Technology, Delhi; and was a professor and Dean at the Indian Institute of Technology, Madras and right now he is the chairman of the Naval Research Board, Defense Research and Development Organization, Government of India. Were they present in the Board meeting of Satyam having decided on this?

http://www.guardian.co.uk/technology/2009/jan/15/satyam-computer-services

he disaster that is Satyam has sent shockwaves around the outsourcing world. In short, India's fourth-largest outsourcing services provider inflated the amount of cash it said was on its books by $1bn (£680m); incurred a $253m liability on funds personally arranged by its chairman and founder, Ramalinga Raju; overstated quarterly revenues for the period ending 30 September 2008 by 28% and overstated earnings by $125m. These revelations have led to a crisis of confidence about whether the company will continue, placing question marks over India as a premier destination for outsourcing IT services.
Prior to the revelations that emerged last week, Satyam counted 185 of the Fortune 500 companies among its portfolio of around 600 clients, which includes international brands such as General Electric and Nestlé. In the UK, companies such as Birds Eye Iglo and BP are affected.

Satyam undertakes a variety of IT jobs, which include project-based programming through to running business-critical systems such as those offered by SAP and Oracle. Right now, though, it almost certainly requires a government bail-out. The former Accenture partner Brian Sommer, who in December was advocating that Satyam be bought out, says: "Payroll waits for no one. I expect to see a short-term injection of cash by the Indian government to keep it going while the new board of directors figure out what to do." Reports coming out of the Times of India indicate this is the most likely short-term scenario.

Rebuilding Satyam's reputation may be a near-impossible task. Sommer says: "There are only two things a service firm has, its people and reputation. People can be replaced but reputation is far more difficult to re-establish."

Vinnie Mirchandani, an expert on outsourcing and a negotiator for large-scale outsourcing contracts, says: "It's like a terrorist attack. It sends shockwaves that have a significant effect on Satyam customers. But in the scale of things, Satyam is not that big a problem." Mirchandani believes Satyam's $2bn in revenue can be absorbed by others in the $50bn industry.

While some services can be easily transferred to other companies, moving complex business processes such as back-office accounting requires significant effort. In this week's Business Week, John McCarthy, an analyst for Forrester Research in Massachusetts, says that figuring out the knowledge-transfer process "is not for the faint of heart". "In the best case, they can transfer the documentation [to another firm], but if not, they have to look to the [employees] of Satyam."

The bigger question is whether the backlash will affect India's reputation as the outsourcing destination of choice. Mirchandani believes not: "My clients are not going to stop outsourcing. India remains a good choice and companies such as TCS, Wipro and Infosys all have solid reputations." He adds on his blog: "As they say, sunshine is the best disinfectant there is. So this increased spotlight is healthy. But we need to be careful and not get paranoid about extrapolating Satyam's issues to the whole industry."
Karl Flinders of Computer Weekly is not so sure, noting that Wipro, Satyam and Megasoft Consultants have at various times been barred from dealing with the World Bank because of corrupt practices. He says: "Global customers of Indian IT suppliers are questioning the transparency of their suppliers following last week's scandal."
Jason Corsello, an HR procurement consultant, says we can expect a significant customer exodus from Satyam, with due diligence measures increasing for every Indian vendor and the possibility many clients will be driven into the arms of IBM or Accenture. That is bound to mean higher prices, at least in the short term.

Francine McKenna, an ex-PWC director and a fierce critic of the "big four" accounting firms (PricewaterhouseCoopers, KPMG, Deloitte and Ernst & Young), believes the Satyam issue raises fundamental questions of oversight. She says: "It's hard to know the extent to which there was complicity between the auditors and senior management or whether it was plain incompetence. PWC (Satyam's auditors) doesn't have the enforcement capability. It's left with little choice other than to cut off the gangrenous arm and throw some of its Indian partners under the bus."

All this means that, while outsourcing to India isn't going away right now, concerns remain, as pondered by Sommer on his blog.
If India chooses to pretend that this didn't happen, or sweep the whole matter under the rug, it will severely damage its ability to attract new business to the country. If people can perpetrate such frauds with little or no consequence, then what responsible firm would risk its capital in such a place?

In the meantime, Satyam is trying hard to reburnish its image. In a media statement published in the Times of India, Kiran Karnik, one of three new board members, said: "Everybody who has interacted with the Indian IT industry is well aware of the high standards of transparency and governance. There has been one very tragic, unfortunate case but that does not mean the industry is under a cloud."

So far, the only company that has publicly expressed support for Satyam is Malaysia Airlines, which has received assurances that it is business as usual. It is understood that BP, Nestlé and GE are all considering their options.

http://indiapoliticalblog.com/2009/01/07/the-satyam-case-major-fraud/
India has seen corporate scandals in the past, but never one of this magnitude. A software company, touted as a success story, the 4th largest software company in India and one that services around 1/3rd of the Fortune 500 companies, the events of the past one month have been a total shock. They have called into question the entire range of issues related to ethics, corporate governance, fiduciary responsibilities, professional auditing, and so on. There will be a lot more soul-searching that will happen, a lot more inspection and suspicion of other companies, search for more skeletons in the cupboard, and so on.
What has Mr. Raju brought forward. Starting from the surprise news about Satyam trying to buyout the realty companies, Maytas (run by Mr. Raju’s sons), this is almost like a film story. The news about Satyam using its huge estimated surplus of more than $1.2 billion to buy companies related to the promoter (especially when the promoter held only 8% shareholding in the company) was a huge blow to all norms of corporate governance and met with huge resistance. Seeing this resistance, the company decided to roll back this proposal, but things would not stop from that point onward.

The issue kept on snow-balling, and when a popular issue comes up in the press, they can push at all areas and get more secrets out. So, questions started being asked about respected board members such as Vinod Dham as to whether they asked the right questions and acted in the interests of the shareholders. Other news started disclosing that actually the promoters had already pledged all their shares and effectively could be actually holding no stake in the company. And then the World Bank announced that in continuance of an earlier investigation, Satyam has been found to have a great many security problems with their last work (including probable sniffer tools and a data hole), and hence Satyam has been banned from further World Bank contracts. By now the independent board members had started resigning.
There was a lot of news about how attractive Satyam could be because of its huge holdings of cash and high book value vs. the value of shares, and then there were even more reports questioning whether Satyam really did hold onto these reserves.
And now, finally the CEO of Satyam has revealed all. The company was cooking its books, and once started, there was no going back, and hence the company eventually has declared reserves to be $1.5 billion more than what they actually hold.
All this came as a huge shock to the people of the country; how can such respected promoters actually commit this huge fraud, can one really believe them now when they say that they did not benefit ? What were the independent auditors (Price Waterhouse Coopers) doing when they were doing audits since 2001 ? There are already too many jokes about lawyers and accountants, so maybe this was another reason why accountants cannot be trusted. Is it possible that only a few board members and CEO knew about this, and no one else ? This was money that was supposed to be coming into the company, how can senior management (besides the promoters) claim that they did not know ? There are too many questions, and one wonders as to whether all this will really become clear ?
Now what happens ? Well, it is not like Satyam is bankrupt – it still has a large number of clients (although some of them would want to bail out), it has a huge number of people on its rolls (50,000), it is a huge part of the reputation of Hyderabad as a big IT city, and there are still institutions who hold a huge amount of the company’s shares. It is difficult to let such a company go out of business, and one expects that there will be pressure to ensure that while the investigation goes on, the company is retained as a going concern. However, the US has a law where auditors and the company’s management are responsible for the accounts of the company, and this is a blatant violation.