Satyam reveals billion-dollar lie

In a spectacular case of fraud that sent shockwaves through India Inc and global corporations, Ramalinga Raju, founder and chairman of India’s fourth largest IT company, Satyam, disclosed that the company had falsified its balance sheets and inflated its profits by Rs50.4 billion (US$1.02 billion).

In a letter to Satyam’s board of directors on 7 January, Raju announced his resignation as chairman and chief executive, after confessing he had manipulated the company’s accounts for several years. The letter provided details of false reporting of inflated profits over the last several years. “What started as a marginal gap between actual operating profit and the one reflected in the books of accounts continued to grow over the years. It has attained unmanageable proportions”.

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Writing of his attempts to narrow the gap between fictitious assets and real ones, Raju stated, “It was like riding a tiger, not knowing how to get off without being eaten.”

The revelation came after a failed attempt by Satyam in 2008 to buy two companies owned by Raju family members. The moves resulted in a loss of confidence by Satyam clients and a dramatic drop in its share value in December.

Labelled “India’s Enron”, the case has resulted in the launch of class action suits by clients in the US, and investigations by authorities in India and overseas.

The worst affected parties include Satyam’s shareholders and employees, who face uncertainty about the status of their funds and future position as the fraud continues to unfold. “Innocent people are going to get butchered in the process,” said Priti Suri, proprietor of PSA, Legal Counsellors, a Delhi-based law firm. “People have a tremendous amount of worries because they don’t know whether they have to stay with the company or move elsewhere. If this company is going to survive it is really going to have to go through a very rough patch in order to rebuild itself.”

For in-depth coverage of the Satyam case and its repercussions, see The awful truth.

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