Nine months on, Satyam fraud still a riddle

Written by Neha Pal | Updated: Sep 7 2009, 08:25am hrs
Nine months after the Satyam scam, Indias biggest corporate fraud of $1.5 billion, the investigating agencies are yet to get their act together. On Sunday, corporate affairs minister Salman Khurshid said he was still awaiting the final report from accounting regulator Institute of Chartered Accountants of India (ICAI) on its version of how the fraud unfolded. I dont know why it (ICAI report) is not coming. I am not able to understand what the delay is about, the minister told agencies.

But an FE investigation found out that the process of getting B Ramalinga Raju, former chief of erstwhile Satyam, to court to face final charges will take quite some time. This is because a lot of work is still pending with all the four agencies tasked to track the Satyam accounting fraud. These agencies are the Serious Fraud Investigation Office (SFIO), stock market regulator Securities and Exchange Board of India (Sebi), ICAI and the Central Bureau of Investigation (CBI).

So far, the only step taken by the government for Rajus trail is the plan to set up a special court for Satyam in Hyderabad.

On April 7, a CBI team filed a 6,500-page chargesheet including allegedly incriminating documents and statements against Raju and eight others who were involved in the execution of the Rs 7,800-crore fraud. But CBI acknowledges that those are not enough to book the former promoters of the company for issues like diversion of funds, their misappropriation as well as the role played by the independent directors over the years. Those will come in the second phase, according to the agency.

Those named in the Satyam case include besides Ramalinga Raju, the former chief of the company, his brother and former managing director Rama Raju, another of their brother Suryanarayna Raju, as well as former CFO Vadlamani Srinivas, vice-president(finance) G Ramakrishna and the two sacked auditors of PriceWaterhouse, S Gopalakrishnan and Srinivas Talluri. Two others charged include D Venkatpathi Raju and Srisailam, both employees in the finance department of the company.

The nine were charged with various breaches of the IPC, including conspiracy, forgery of valuable security, cheating, falsification of accounts, using forged documents as genuine, causing disappearance of evidence etc, said Harsh Bhal, ADG, CBI. But he also told FE, The present findings of CBI are enough (only) as far as far as the allegations in the charge sheet are concerned like conspiracy, cheating.

Bhal said the second phase of investigation is on. It should be over by end of September or October. Incidentally the multi-disciplinary investigation team of CBI suspects the promoters might have diverted the funds of the company to foreign accounts in the US, Mauritus, England and even some countries in Asia.

Just compare this with the $50-billion Bernie Madoff investment scandal in the US that came to limelight around almost the same time, in December 2008. Six months later, on June 29, 2009, Madoff was handed a 150 years in prison with restitution of $170 billion, which he has begun serving.

The multi-disciplinary fraud investigation office that the corporate affairs ministry had set up to specifically tackle such cases has ended up submitting a fat 14,000-page preliminary report. But this report too lacks details on the key issues. The agency has only found traces of siphoning of funds and so the report has not levelled any allegations.

For instance, the report was unable to track down the chain of events leading to diversions of funds. There are still some aspects to be reported on and the final report will now come, said Khurshid. The missing links include lack of explanation about the beneficiaries of third-party transactions of about Rs 600 crore. The end-use of funds raised through American Depositories Receipts (ADR) worth $100 million has also not been tracked.

But on perusing the details, Indranil Ghosh, head of litigation at law firm Fox Mandal said, The preliminary investigations conducted by SFIO and CBI are enough to put Ramalinga Raju behind the bars for atleast 10 years.

Corporate lawyer, Sourabh Kalia, partner, UKCA law chamber too said, In view of the preliminary enquiry conducted by the SFIO and CBI wherein both the authorities have made a prima-facie opinion that Raju is guilty of several offences under IPC and Companies Act, a prosecution can be filed against Ramalinga Raju and he can be sentenced to jail.

The investigating teams from SFIO, and the income-tax department have found some valuable leads when they contacted the banks mentioned in the Satyam balance sheets to cross check the deposit receipts which the company had with them. They found the IT company had allegedly given misleading statements about its bank fixed deposits as the confirmation letters issued by the bank with some of the fixed deposit receipts were found with false authorised signatures.

As far as the accounting regulator ICAI is concerned; the president of the institute, Uttam Prakash Agarwal has said that the high powered committee of ICAI has submitted the report to ministry of corporate affairs around a month back. ICAI started its investigation in January and was supposed to submit its first report to MCA within a month but later the timeline was extended to July 9. ICAI was supposed to submit a report on the role of Price Waterhouse after reviewing the shortcomings in the accounting and auditing aspects of the Satyam case.

The government has also not received any report from the Enforcement Directorate (ED) and US Internal Revenue Services (IRS) which was investigating the relationship of Satyam and the two Maytas companies and whether there has been any siphoning of funds. ED and IRS are looking at the relationship between Satyam and the Maytas companies. Right now there is nothing available to us, Khurshid told FE.