Introduction to Satyam Scandal
In 2009, the Indian equivalent of the fabled 2001 Enron fraud case occurred in India. The chairman of Satyam Computers Services, Byrraju Ramalinga Raju, confessed that the accounts of the company had been manipulated to result in a fraud of nearly 7000 Cr.
Understanding Satyam Scandal
The Satyam Scandal exposed the many loopholes of the Indian Legal system while also throwing light upon the Financial system. Established in 1987 by the Raju brothers, Satyam Computers went on to get listed on the BSE in 1991, where the shares were oversubscribed by 17 times. Its growth was steadily quick, achieving milestones year after year. The annual revenue of 1 billion, and touched 2 billion in 2008. The ideal success story.
The truth, as the meaning of ‘Satyam’ is, was that the numbers were extravagant figures being supported by fake bills, receipts and bank statements. Satyam also employed their own ERP system to account for these fictitious receipts instead of the commercial ERP accounting systems. The fake bills amounted to nearly 5000 Cr. in a Fixed Deposit (FD).
In 2009, the board of directors expressed that the idle money in the FDs be invested, one that the Raju brothers decided to invest in Matyas, another holding of the Raju family. It was a last resort to match the statements between Satyam and Matyas, which the stakeholders opposed.
The heat of disagreements and the pressure that built from the World Bank’s interrogation, the subsequent falling of share prices and the inability to match the real estate statements of Matyas to an IT company put Satyam and PwC failures in the spotlight. Following this, Raju and ten others were arrested with three partial charges, consolidating into a single charge sheet.
Highlights of Satyam Scandal
In the aftermath of the scandal, Tech Mahindra purchased Satyam through public auction, following which the new company was branded as ‘Mahindra Satyam.’ SEBI barred Price Waterhouse (PwC), the auditor of Satyam Computers, from conducting any audit processes for any company in India for two years, starting 2018. From Rs. 554 on the BSE and $29.10 on the NYSE in 2008, the share prices of Satyam fell to Rs. 11. 50 and $1.80 respectively.
