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On January 7, 2009, Byrraju Ramalinga Raju, founder and chairman of Satyam, wrote to the Securities and Exchange Board of India (SEBI) and the company's shareholders admitting that he manipulated the company's accounts to the tune of Rs 7,000 crore, shocking the global corporate community. Nearly 94 percent of the reported cash reserve of the company had been fictitious.
The confession blew the lid on what came to be known as India's Enron. Satyam's shares fell from a high of Rs 180 to a low of Rs 76, dragging down the Sensex 7 percent.
As Raju explained, the company had started off by inflating some of its financials, and got caught in the quagmire of ever-increasing expectations on how to keep up the performance. "It was like riding a tiger, without knowing how to get off without being eaten".
Satyam's backstory
Satyam Computers was India's fourth-largest IT company, behind TCS, Infosys and Wipro. Raju was held as one of the torchbearers' of the Indian IT story. Satyam had won several awards for corporate governance.
But something was amiss. A few months before Raju confessed, Satyam had announced it would take over its group company Maytas Infra (Maytas' name was Satyam's spelled in reverse).
The proposal led to a lot of consternation among investors. Why would an IT company want to acquire an infrastructure company? Were there not enough opportunities left in IT?
In hindsight, this was a last-ditch attempt by the Satyam promoters to merge two companies -- a move that would have helped Raju continue to cook his books more effectively with an asset-heavy infrastructure firm.
The evening the announcement came out, Satyam shares sold off in US trading, sealing the fate of the proposed acquisition. With the share price depleted, Satyam couldn't use its stock to buy Maytas. The next morning, Raju confessed.
Events since
After the scam came to light, independent directors, auditors, banking partners and related entities to Satyam became the center of attention. PricewaterhouseCoopers (PwC) were independent auditors of Satyam when the news of the scandal surfaced. The US Securities and Exchange Commission (SEC) fined the Indian arm of the auditor $6 million, slamming its failure to detect such a fraud. In 2018, SEBI banned the company from auditing any listed company in India for two years.
The Company Law Board disbarred the board of the company and appointed 10 nominal directors in 2008. The then Corporate Affairs Minister Prem Chand Gupta said the board failed to do their duty and at their expense, the credibility of India's IT industry should not suffer. Deepak Parekh, former NASSCOM chief Kiran Karnik, and former SEBI member C Achuthan were nominated by the government to Satyam's board.
In April 2009, Tech Mahindra bought a 46 percent stake in Satyam via a public auction process, to form the country's fifth largest IT exports company. It subsequently merged within Tech Mahindra in June 2013.
What happened to Raju?
Raju was arrested by the police in January 2009, along with his younger brother B Rama Raju and got bail from the Supreme Court in 2011, as the CBI failed to file a chargesheet.
The market regulator slapped a fine of Rs 1,849 crore on Raju and barred him from the markets for 14 years. In 2015, Raju and nine others were found guilty under various counts of the Indian Penal Code and sentenced to seven years in prison by a Hyderabad court.
Raju is currently out on bail and lives in Hyderabad.
Satyam Raju's Letter to... by on Scribd
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