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Satyam Computer Services
In 1987, B. Ramalinga Raju started Satyam Computer Services in partnership with his brother in law. Satyam Computer Services was an IT company based in Hyderabad. Before Satyam Computer, B. Ramalinga Raju had a cotton business. In 1991/92 Satyam Computer Services was listed on BSE and in NYSE in 2001. Back then, Satyam Computer Services was one of India's fasted growing companies. The company and B. Ramalinga Raju got several awards accreditations for doing an outstanding business.
The company was on a good growth track. At the same time, the boom in the real state market attracted Raju. The value of the real estate in Hyderabad was skyrocketing. So Raju started buying land and properties in Hyderabad and many other places. He started Maytas Infra in 1988 and one other real estate company called Maytas Properties. He started buying properties under those companies. He also bought several properties under the names of his family members. Raju started buying real estate very aggressively.
Raju needed more money to buy real estate. He started manipulating the financial statements of Satyam Computer. For example: when the company had only 60 Crores of profit, he manipulated his statements to show it as 600 Crores. He wanted it to show that the company was growing rapidly so that the share prices of the company would rise. At the risen rate Raju and his brother B. Rama Raju would sell their stocks of the company. And with the money, they would buy more real estate.
Raju had created approximately about 365 companies to buy properties. He bought properties under his family's name, relatives. Even his maids and farm workers. He made them the directors of one of his 365 companies.
According to "Metroman" E Shreedharan, Raju had the inside information about the purposed metro route. This means that Raju knew where the metro route was supposed to be built. He would buy properties around the route. So that once the route completes it would skyrocket the value of the surrounding real estate. And with the profit, he got from reselling that real estate he would easily fill the gap between the real and fake financial statements of Satyam Computer.
Satyam Computer Services Fraud
Raju started making fake sales invoices to fake the actual sales of the company. He had made about 7500 fake sales invoices. He faked the sales to be higher than the actual sales by making those fake sales invoices, but where was the profit? For that, Raju generated fake bank statements. The bank statements showed that the profit from those sales was reserved in a bank account. It was also fake.
The game went on for several years. Raju attracted many investors to the company showing its fake growth. With that, the price of Satyam Computer stock also went up. Then he would sell his promoter shares at a much higher price. In 1999 Raju had 24% of the promoter shares in Satyam computer which went down to 2% by 2008. He used the money he got from the sales of those shares to buy real estate properties.
As time went on so did his game of financial fraud. The gap between forged and the actual financial condition rose very high.
The 2008 recession hit the real estate market very hard. There was an unprecedented slowdown. Raju's plan to fill the gap of actual and fake financial reports with the profit from real estate failed. So he made a new plan.
According to the new plan, Satyam Computer would buy 100% of Maytas Properties and 51% stake in Maytas Infra. The money would go to the promoters of Maytas. Remember, Maytas Infra and Maytas Properties both were Raju's businesses. Reverse SATYAM and you would get MAYTAS. Raju wanted to make it look as if the money difference between the actual and fake figures in Satyam Computer was used to buy those two companies. While there was no cash transaction because both the companies were his own. The gap would fill.
On 16th December 2008, Satyam's board of directors approved the deal and Raju sanctioned it. But, Satyam's investors were not satisfied with it. Especially the institutional investors of Satyam Computer. After the decision of the deal, the stock price of Satyam dropped steeply. An investor from the US also filed a lawsuit against Satyam. In NYSE, the price of Satyam stocks dropped a whopping 55%. Because of this pressure, Raju had to cancel the deal to buy Maytas Infra and Maytas Properties.
As soon as the deal was cancelled, Satyam's independent directors resigned from the company. This was the only chance for Raju to fill the gap of his financial fraud. After all his plans failed, Raju confessed to the SEBI( Securities and Exchange Board of India) that Satyam Computer had been manipulating their financial statements for many years.
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| Snipped from YouTube |
As you can see here, the profit that Raju faked were many times higher than his actual number. So were the actual and fake cash deposit. According to his confession, the gap between his actual balance sheet and the fake one was about 7000 Crore INR.
After this, Raju along with his auditor and the independent directors were investigated. Satyam's auditor was PWC(Price Water House Coopers). PWC was banned for two years by SEBI. US stock market regulator SEC fined PWC for 6 Million dollars. Later it came out that Satyam bribed PWC to hide the fraud in financial statements. In 2009, Raju and his brother were arrested.
After the scam came out, the Indian government appointed a new board of directors to save the company from collapsing altogether. The government had planned to sell the company as soon as possible. Finally, Tech Mahindra bought the company.
According to a CBI investigation, Raju also laundered money. Enforcement Directorate charged Raju along with 47 other people and his 166 companies of money laundering. Their properties were seized. SEBI also charged him and many from his family for Insider Trading. They were ordered to return the profit of 1850 Crore INR that they had made with 12% interest. Also, they were banned from doing any deals in the securities market for 14 years. In 2015 Raju, his brother and his then CFO Shreenibas Vadlamani along with two partners from PWC and 5 other people were assigned 7-year imprisonment by special CBI court. Raju and his brother were also fined 5.5 Crores INR.
Final Words
Before the scam was out, Satyam Computer was the 4th largest IT company in India. Satyam's stock was listed in both NIFTY and BSE SENSEX. In 2009, the stocks were removed from both indexes.
From the stock market, Satyam's general investors lost about
14000 Crore INR.
Satyam means "the truth." But there was nothing true about what the promoter of Satyam Computers- the company did. Raju only wanted to make money.
To the general investors, take one thing in mind. Whenever the promoters of the company sell their stock you must check why are they selling them. Is there any fraud about to happen? Because most of the times,there is one.
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