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Wednesday, January 07, 2009

Oh no

I was hopeful that in the Satyam story, the management would be sacked by the shareholders. Instead, it's turned into a disaster. Here's the resignation letter. Do see: satyam, satyam, fraud.


  1. as your prognosis earlier, the chickens are coming home to roost. worry being that this is first off the block.

    today a few stocks fell much more than the nifty. suzlon, reliance group(both brothers), realestate comapnies and icici bank.

    says something

  2. Ajay,

    SEBI and Indian regulators ignored the warning signs for a long time.

    Now Raju claims that his senior management team was unaware of the fraud.

    I beg to differ. Many of his friends were actively involved in perpetrating this fraud. Some like Prabhat and his gang have already left the firm. Reporting non-existent revenues is a crime. Raju did not do this alone.

    If a client pays Satyam $1m in fees and Satyam reports fees over $25m, this is done by the senior managers like Ram, Virender, Keshab, Joe and others. HR heads like ASM and Hari T. were warned, but they silenced the critics.

    Getting these fraudsters on a SWAT team is an insult to everyone.

  3. Satyam's plan to acquire Maytas, an Infrastrucuture firm run by the Satyam promoter family, created a widely reported controversy over Satyam's Corporate Governance. The promoter family owned very little stake in Satyam while FIIs were the largest shareholders. FIIs alleged overvaluation of Maytas equity in the deal, and pointed out the strategic irrelevance of the IT services firm's diversification into Infrastructure. Independent Directors on the Satyam Board were attacked by FIIs, the financial media and one Member of Parliament for their complicity in approving the controversial deal, and all except one of the independent Directors resigned.
    FIIs demanded the resignation of Satyam's promoters and approached several strategic investors such as IBM,Oracle, HCL and Tech Mahindra to buy out the promoter stake in Satyam. Strategic investors demanded a lower valuation of Satyam's equity despite the stock having plummeted due to the Maytas deal controversy.
    This morning Mr.Ramalinga Raju, Satyam's promoter, resigned from the Satyam Board. In his resignation letter Mr. Raju revealed a total overstatement of Rs. 7,000 crore (around $1.45 billion) on Satyam's books as of the September 30, 2008 Balance Sheet. Mr. Raju, the outgoing Chairman of the Board, claimed individual personal responsibility for manipulating the Company's accounts;overstating revenues and assets; and understating liabilities; over a period of several years without the knowledge of any other Board members or the Managing Director.
    It appears that what has really happened is that Mr. Raju has diverted the money from the Company during the recent controversy. This action was probably motivated by the FIIs' unwillingness to allow him to continue to run a Company which he personally founded and built from a few people to a headcount of more than 50,000 over a period of 20 years.
    It is unlikely that the money will be traced through investigations. This correct understanding of the Satyam issue indicates that a significant part of the Rs. 7,000 crores diverted from Satyam will find its way to the Maytas stock behind the scenes. I would therefore advise investors with a 2 year horizon to go long on Maytas.

  4. Now , India media should stop "India Shining" from now on. Instead of anti-publishing the US companies and US job market, Indian Media needs to understand how the corporate companies tries to screw the stock market & people in India.When Martha Stewart sold her OminiMedia Stock thro inside trading , she was jailed for about 1-1/2 years . Whether indian government is capable of doing just like US government did ? This same kind of mis-management is happening in most of the sectors in india.

  5. Agree with the comment that Raju has diverted funds in the range of more than $1 billion.

    He was probably doing this for more than a year and most likely accelerated this process after the Maytas fiasco.

    Why the strange insistence that the named crooks in his confession were unaware?

    Also, is SEBI going to look into the insider crooks who sold stock in the last 18 months and have left the firm ?
    This is probably where the real money resides.

    As far as going long on Maytas is concerned, don't be too sure that their contracts are safe. if the public outcry is too much, they will lose these contracts.

  6. grapevine has it the irregualarities are rampant in the IT/BPO sector & investors are questioning Infosys/Wipro/TCS etc too.
    Law will forbid the western companies to deal w/ companies engaging in fradulent activites. This is leading to BPO bust. Will trigger massive real estate default & plunge. Satyam's real estate spree in hyderabad was largely resposible to real estate bubble there
    Like buffet says when tide goes out naked swimmers like madoff,raju,premji?,ambani?,mittal?,narayan? come out

  7. This is time for Indian Reserve Bank to act quickly and forcefully similar to United States Fed. To prevent a collapse of Indian software industry, they should immediately buy all those fictitious assets. What is non-existent today could become real in the next decade. Once people accept their fault, they should be rewarded to encourage positive behaviour.

  8. Guys, do the independent directors have liabilities in the US owing to a listed ADR and SOX?

  9. This crisis will be a blessing in disguise for the profession of forensic accounting. ICAI was embarking on a mission to equip CA's with the latest tools used in Forensic accounting. Now institutional investors will pay a premium for corporate governance. Further I expect quarterly financial reporting in toto with companies forced to report P & L account, Balance sheet and cash flow statement unlike the current practice of only reporting P & L account on a quarterly basis. Independent directors who were part of the audit committee at Satyam are going to face the music and I expect regulators to g o after them.

  10. I am curious Ajay, if SEBI has the technical capability to unravel what happened here, especially regarding Ramalinga Raju being the only person involved in this fraud.

  11. the first thing which came to my mind when i heard of Satyam was ur previous post where u had warned 2009 will be the year of frauds coming out in the open.

  12. This is just to make sure my earlier post isn't misunderstood. I think Mr. Raju has diverted the Rs. 7000 crore in the last few days.
    His reputation was in any case under a cloud over the Maytas controversy and since there was a lot political pressure on him to quit.
    Any idea who the buyers were in yesterday's Satyam trade? Today's economic Times reports 'a corporate house'.

  13. Its time to separate the wheat from the chaff..companies with good corporate governance will definitely command a premium on the bourses. It wasnt a coincidence that Infosys closed in the green despite the market mayhem yesterday.

  14. Who wants to believe that the company was making only 3% margins when all its competitors were making >30% margins at the operating level...Who is he trying to fool again...With all the tax exemptions and support from the govt uve got to have decent margins..Just shows that funds have been siphoned off to promoter group companies over a period of time and Raju is painting a fabulous lie now.

  15. SEBI Needs to check the guys who wrote the put options from Jan 1 to Jan 7th, 2008.

    It might throw many skeletons if Raju might have done through some hidden fronts or some of his friends who got the info leaked out before and minted millions.

    This posting has this interesting view point which SEBI needs to investigate right away...

  16. Its such a pity that all Indian IT companies come under suspicion because of Satyam.

    If I am CEO of a big corporation, say GE/Coke/.., I will be more comfortable dealing with Accenture US paying hefty money, than risk dealing with Indian companies, atleast with all core/critical services where the margins are big.

    There are scores of companies which make tremendous effort to get all accounting done as per standards (yes, in India, there are good number of companies which do pay IT, Service, Professional taxes etc.). Life is unfair, Management of some company screws up, and everyone has to suffer. Or may be, it was not unfair. We let our soceity and systems come to this level, we are not electing right leaders, we are either paying/taking bribes (or) looking away when others are doing it. If we let a part of the car go rusted, some day the car has to face the troubles. Will we fix the part? or spray paint?

  17. 5 days ! Where are you Ajay ?

  18. RiseEarly, I couldn't disagree more! This software outsourcing is a 'business to business' (b2b) market. What software infrastructure/development Satyam provides to GE (say) can be invisible to the users of the GE brand.

    The wage differential still makes Indian software very attractive to developed it makes sense that indian gormint is letting Satyam continue operations under new board, rather than bankrupting them....



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