The Central Bureau of Investigation has filed two charge sheets documenting the corporate fraud at erstwhile Satyam Computer Services Ltd. The first one was filed in April 2009 and a supplementary charge sheet in November 2009. There is little doubt that it is an exhaustive document that should be good enough to bring conviction. But the missing parts are significant.

The charge sheets have arrived at a consolidated loss suffered by all classes of investors at Rs 14,162 crore. This includes, according to the agency, a Rs 1,611 crore loss made by 15 institutional investors when the share prices of the company crashed after the disclosure made by Ramalinga Raju and a Rs 12,551 crore lost by the retail investors.

How did the fraud play out? On April 9, 2006, the then chairman of Satyam ?sent separate e-mails to business unit heads to send proposals for developing products which could be used by specific customers?.

The charge sheet explains that once a work order is received in the company, a project ID is assigned in the Satyam Project Repository. ?The associates (employees) allocated to the project, key in their actual working time on the project and the project managers confirm the efforts of the associates to the concerned finance-in-charges who in turn advise the central invoicing team for raising the invoices.? These invoices are the basis on which the company chases the customer. The procedure is fairly similar to that of other IT companies but is at the heart of what happened thereafter.

Ramalinga Raju, his brother and then MD of the company, B Rama Raju, the CFO of the company, Vadlamani Srinivas, and his team, including G Ramakrishna, vice-president (finance), DV Raju, senior manager (finance), Ch Srisailam, assistant manager (finance), and VS Prabhakar Gupta, global head of internal audit, apparently began short circuiting the process right from the beginning. This was the core team that ran the Ponzi scheme the company had apparently become, but the charge sheet fails to make those linkages.

The core group set up project teams to work on products for seven customers, but without getting the purchase orders and only based on details available in the proposals circulated by Raju. ?The teams were formed on the oral instructions, even before the receipt of the purchase orders?.

The fun began thereafter. As the projects progressed, the finance-in-charges made enquiries about payment status. The core team forged purchase orders for them. Based on these, billing advices were raised by the departments and sent to the invoicing teams. They in turn raised invoices of Rs 430 crore, but here too the core team intervened. They created a set of invoices ?which were not visible to all? in the company. The 22 invoices ?are part of the 7,561 fake invoices already identified? by the CBI. Thus, by ?creating invoices against non-existing customers, the sales were inflated by Rs 294 crore (approx)? during the first three quarters of 2006-07. The investigation notes that the receipts against these invoices were shown as if realised in the books of accounts of the company, though there were no corresponding remittances in the accounts maintained at Bank of Baroda, New York.

These seven foreign customers who never existed were given an IP address that was generated by the accused in Hyderabad. These e-mails were created just a few weeks before the dates on which the company staff apparently received the mails. They were all created by DV Raju, using his address and also paid from his credit card. ?For the purpose of executing the above said projects? the accused have wasted thousands of man hours of the associates of (Satyam)?. The infusion of these fake invoices into the accounting system (created) false financial stability and credibility.?

To create a matching trail to cover the fictitious sale, they made the company spend Rs 68 crore on the salary of the employees.

Nipuna & Maytas

According to the CBI, the other criminal breach of trust by the accused occurred in the case of Nipuna Services. The BPO company was set up in June 2002 by the same set of accused. Since inception it incurred losses. Raju got two companies, Olympus BPO Holdings based in Mauritius and Intel Capital Corporation headquartered in Cayman Islands to invest $20 million in Nipuna. The charge sheet notes that the accused got the two investors to agree to sell out their stake to Satyam in 2007. ?The accused kept the board of directors (of Satyam) in the dark with regard to the source of funds for the purchase of the shares of Nipuna and also regarding the fiscal health (of Nipuna) which was a loss making company since inception?.

The sale was arranged by taking a loan of Rs 160 crore from several front companies and the final price was Rs 229 crore that Satyam paid.

It is curious that the board of directors of Satyam did not have any knowledge that they were buying into a loss-making company. The charge sheet itself says that Satyam had an M&A team that regularly vetted such proposals and so it should not have been difficult to trace the company.

The same inaction also marked the final call on Satyam?its aborted attempt to buy into Maytas Infra and Maytas Properties. But in that case, the board at least had the excuse that the agenda was uploaded on the night before the board meeting on December 16, 2008. But here too, the members were not really in the dark before that. Ramalinga Raju travelled to the US, to ISB and other places, according to the police report, to convince the members of the need and the desirability of letting the two buy-outs at a cost of Rs 7,914 crore go through.

But the charge sheet, while it says Raju ?personally met all the Board members just before the board meeting and projected the proposed acquisition as a beneficial deal? stays silent on the culpability of the members.

The other aspect of the aborted deal was the valuation of Maytas Properties Ltd. The charge sheet notes it was got done by the accused, ?secretly and hurriedly through Ernst and Young?. It also adds that the valuation by EY was done ?using an advocate Sri Raghunandan Rao for fronting the valuation process. None of the FIIs, nor the investors (of Satyam) were consulted.?

Yet, the charge sheet accepts the figures on their face value. The only area where it is on absolute sure ground is the tracking of the audit trail. It has devoted 23 of the 107 paragraphs narrating the goings-on in the audit functions.

Using the case of the seven forged customers, it notes that the audit trail was left uncovered over the years. The external auditors, Price Waterhouse, did not do the checks on the live terminals of the company in several cases and instead depended on Excel sheets supplied by the company, which were often tampered with. On the other hand, the accused pumped the accounts and audit rules and coerced internal audit employees to stay silent on the deals, even when they pointed out the discrepancies, which in one random check amounted to Rs 10 crore. The report therefore gives a detailed breakdown of the way the finance heads established the possible complicity of the two auditors into the shenanigans.

But despite these red herrings, the 80-page charge sheet is silent on the possible collusion of all entities other than those run and owned by the Raju family in India?s biggest corporate fraud, though the CBI report emphasises that the fraud began more than a decade ago in 1999.

Missing monies

Overall, the CBI papers claim that Raju and his family gained Rs 2,700 crore from the scam, of which Rs 748 crore came from insider trading and another Rs 1,951 crore from the pledging of shares to raise loans from NBFCs, including IFIN, Deutsche Investments, GE Capital Services, DSP MLC, Sicom, ICICI Prulife and IFCI.

Some of the proceeds of the insider trading were used by the family to build up real estate worth Rs 350 crore between the years 1999 and 2006.

But what it excludes is interesting. While the charge sheet gives details of the massive Rs 1,951 crore loans the accused raised from several financial companies, the final summary does not mention the sum or the need to follow the money trail. The money was offered against the pledging of Satyam shares through a shell company. The shell company was SRSR Holdings, run by one of the accused. Yet, the charge sheet makes it clear that the seven non-banking financial companies sanctioned loans worth more than Rs 100 crore each to front companies with names like Samudra Greenfields, Vamadeva Greenlands and Vyaya Agro on the surety of the pledged shares of Satyam, but did not ask why a cash-rich IT company should need such cash.

At the same time, it accepts Raju?s statement that funds were required to be raised from all sources to bridge the gap between the rising expenditure and the actual low income of the company. Since, as per the report, the siphoning off was only for Rs 350 crore to buy property and another Rs 25 crore towards excess dividends, there is obviously a money trail that is missing in the story. The charge sheet is silent on where else did the rising expenditure travel to. And if that was indeed the case, then it is not just the Rajus who made all that money.

In fact, the charge sheet shows that at all times the Raju clan was short of cash, as they indeed would be in a Ponzi scheme. But the charge sheet does not explain as to what was that scheme.

Take the other example cited in the charge sheet. The Rajus raised another set of loans of Rs 1,221 crore from HDFC Bank, HSBC, Citibank, Citicorp Finance, BNP Paribas and ICICI Bank between the years 2000 and 2008. The document notes that the banks were paid a consolidated interest of only Rs 43 crore in all these years. How is that possible? All these loans, it notes, were raised on fictitious authorisations created by the accused on behalf of the board of directors of Satyam. But it does not explore how the banks accepted such forged authorisations from a listed company. Who did the due diligence for such large loans? The charge sheet says the interest was a drain on company finances as the loans were not in the books. But it does not say why the interest was so low and why the Board never bothered to ask the reasons for the interest payment, again in a cash-surplus company. The charge sheet lists the sum offered by the banks, but in the summary prayer for prosecution of the accused, refers to it only in passing.

While this was an omission by the banks and the Board, the other was an act of commission. The charge sheet details the fictitious cash balance built up by the accused against the actual balance over the years. But each of these non-existent balances was mentioned in the annual statement of accounts, which none of the banks bothered to question.

Again, in the matter of the offloading of shares through registered brokers, the agency draws up a detailed list of the shares offloaded over the years, but does not go into the details of who helped in the transactions. It instead says the offloading happened in a span of eight years.