Before falling from grace by admitting to India's biggest accounting fraud, Satyam Computer Services B Ramalinga Raju was a poster boy of...
Before falling from grace by admitting to India’s biggest accounting fraud, Satyam Computer Services B Ramalinga Raju was a poster boy of the Indian IT industry who rose to fame with a solution for the highly-feared Y2K crisis at the turn of 20th century for the entire world.
Interestingly, his first business venture was a spinning and weaving mill, named Sri Satyam, while his undoing came in form of spinning a fraud to the tune of Rs 7,000 crore at Satyam Computer — a company he founded and nurtured although with inflated profits and falsified books.
60-year-old B Ramalinga Raju, who was sentenced by a CBI court today to 7 years in jail with a fine of Rs 5 crore, founded Satyam in 1987 and made it into what came to be known as India’s fourth largest IT firm, which reaped huge profits after making software solutions to tackle the famous Y2K crisis.
It was feared at that time that a worldwide bug would crash computer systems across the world, due to abbreviating a four-digit year to two digits, on January 1, 2000, as the systems did not recognise the year 2000 from the year 1900.
However, post Y2K Satyam business began drying up with and Harvard-educated Ramalinga Raju started dressing up the books to attract new clients.
Through family members, he also floated other firms with the name ‘Maytas’, while putting alphabets in ‘Satyam’ in the reverse order. It was eventually a financial engineering proposed by him for acquisition of two Maytas firms by Satyam, a Sanskrit word for ‘truth’, that eventually called his bluff.
This is the second major penalty imposed by Raju, as also on his family members and other accomplices in the fraud that continued for years and came to light after his own admission over six years ago in January 2009.
Regulator Sebi has barred them from markets for 14 years and has asked them to return Rs 1,849 crore of unlawful gains with interest, which totals to over Rs 3,000 crore.
The crime was “a sophisticated white collar financial fraud with pre-meditated and well thought of plan and deliberate design for personal gains and to the detriment of the company and investors”.
On January 7, 2009, Raju – the then Chairman of Satyam Computer – sent off an email to Sebi and stock exchanges, wherein he admitted and confessed to inflating the cash and bank balances of the company, besides understating liabilities and other financial mis-statements.
Weeks before the scam began to unravel with his famous statement that he was riding a tiger and did not know how to get off without being eaten, Raju had said in an interview that Satyam had cash balance of Rs 4,000 crore and could leverage it further to raise another Rs 15,000-20,000 crore.
But on January 9, 2009, he admitted that Satyam Computer balance sheet was ‘inflated’ to the tune of Rs 5,040 crore.
Raju, who studied at Harvard Business School and Ohio University in the US, also remains the first big industrialist with many awards including those for being IT man of the year and young global leader to fall to investor activism.
It was shareholders in Satyam that blew the lid off his Maytas deal, forcing him to come clean on the long-running falsification of books.
Born into a family of farmers, Raju did his graduation from Loyola College in Vijaywada and went to the US for MBA and other programmes. After his return to India, he kept away from the family’s traditional agriculture business and first set up a spinning and weaving mill named Sri Satyam.
Soon, he shifted to real estate and named his construction company Satyam Constructions. In 1987, he joined the IT bandwagon by setting up Satyam Computer Services and made it a public company with stock market listing in 1992. He went further to list it in the US later, while spinning a web of falsified books and accounts in between.
After the fraud came to the light, the government had ordered an auction for sale of the company in the interest of investors and over 50,000 employees of Satyam Computer. It was acquired by Tech Mahindra, then renamed as Mahindra Satyam and eventually merged with itself.
The Satyam saga eventually turned out to be a case of financial mis-statements to the tune of approximately Rs 12,320 crore, as per Sebi’s probe.
Raju, along with his family members and some top Satyam executives, sold and pledged the company shares at inflated prices, which in turn was done by over-statement of bank balances, creation of fake customers, over-statement of revenues and under-statement of liabilities.
At the same time, Raju also manipulated the books by non-inclusion of certain receipts and payments, resulting into overall mis-statement to the tune of Rs 12,318 crore, shows an analysis of findings of Sebi’s probe.
As many as 7,561 fake bills which were even detected in the company’s internal audit reports and were furnished by one single executive. Merely through these fake invoices, the company’s revenue got over-stated by Rs 4,783 crore over a period of 5-6 years.
The probe itself continued for almost six years and found that fictitious invoices were created to show fake debtors on the Satyam books to the tune of up to Rs 500 crore.
Besides, bank balances were inflated by about Rs 1,732 crore and fixed deposits by Rs 3,308 crore. Fake interest receipts worth Rs 376 crore were also shown on books.
The accounts were also mis-stated by not including receipts to the extent of Rs 1,425 crore and payments worth Rs 195 crore.
Huge mismatches were also found in the TDS (tax deducted at source) amounts shown in the audited balance sheets and that in the income tax returns.
On the other hand, the company promoters and top executives made unlawful gains by sale of shares at prices inflated by ‘over-stated’ financial position of the company.