Nick Waithaka Muhiu

Name Professor’s Name Course Date MEMO Satyam Computer Services Limited To: John Summers From: (Student Name) CC: Central Bureau of Investigation of India Date: 20/02/18 Re: Satyam Scandal Background:Satyam was an Indian IT company in Hyderabad, India formed in 1987 by Mr. Ramalinga Raju. The company provided several services including engineering design services, system maintenance, packaged software incorporation, and software development (The Hindu). The company rebranded to Mahindra Satyam in June 2009, following its takeover by Mahindra Group's IT sector at the cost of $14 billion on 13 April 2009 followed by its merger with Tech Mahindra on 24 June 2013 (Express Web Desk). On January 7, 2009, the founder, Ramalinga Raju, resigned and acknowledged to tampering with the firm’s balance sheet to misappropriate $1.47 billion (The Hindu). This incident caused a seven percent drop in the share price of Satyam, which consequently sowed the Indian stock market by a similar value (Vaswani). Key events:The fraud is alleged to have started in 2002. The money Raju took was used to acquire vast tracts of land in Andhra Pradesh to invest in the real estate industry (The Hindu). The money removed from Satyam created a problem as profits reduced. Raju tried to fix it by altering facts to show profits were still growing. The altered facts created further difficulties as Satyam had to pay taxes on fictitious interest incomes. Realizing the mistakes, Raju attempted to replace the tampered figures with authentic ones. In 2008, he tried to buy Maytas Infrastructure and Properties (Hindustan Times Correspondent). The plan failed as institutional investors rejected it. Raju had reached the end of his deception and had to confess to his wrongs on January 7, 2009 (Hindustan Times Correspondent). Fraud:Raju controlled the particulars of Satyam's statements and the discussions in meetings and stored it on his server called "My Home Hub" (Hindustan Times Correspondent). He created fake invoices and bills using software such as "Ontime," and a surreptitious programme was used in the source code to control who could view the invoices (Hindustan Times Correspondent). Further, Satyam advanced massive unsecured loans to various companies and their subsidiaries to create a tangled web of deception. The internal and external auditors and the executive directors participated in Raju’s fraud. Satyam’s shares doubled in price but were fictitious. Cost:The total cost to the shareholders amounted to $2,184,000,000 as per the Central Bureau of Investigation (Hindustan Times Correspondent). Around 10,000 employees feared unemployment but the merger within Tech Mahindra saved them as it avoided a retrenchment (The Hindu). Stakeholders: Ramalinga Raju, the Satyam founder, was the chief perpetrator. There was also his other brother. B. Suryanarayana Raju, Satyam's former chief financial officer. Vadlamani Srinivas, former PricewaterhouseCoopers auditor. Subramani Gopalakrishnan and T. Srinivas, former Satyam employees. G. Ramakrishna, D. Venkatpathi Raju and Ch. Srisailam, and Satyam's former internal chief auditor V.S. Prabhakar Gupta (Express Web Desk). All these people were found guilty of the fraud. Ethical issues: Mr. Raju wanted to make easy money, to obtain power and prestige, and this made him undermine the principles of running a company. Raju and the co-perpetrators neglected their values of care, loyalty, and duty of disclosure towards the stakeholders. This negligence weakened the Indian corporate world and client confidence. The fact that the scandal involved many people who had the power to stop it but did not shows how poor governance can lead to a significant downfall of the stock market and the economy of a country. Prevention: Satyam's fraud could have been avoided if more independent directors were involved in the management. The culprits purposely kept the few independent directors uninformed about the actual books of accounts (Hindustan Times Correspondent). Proper channels for whistleblowers should be set up to help them get the message out while still being anonymous and protected by law. Works Cited Express Web Desk. "Satyam Scam: Everything That You Need to Know." The IndianExpress. http://indianexpress.com/article/india/india-others/satyam-scam-all-you-need-to-know/. Accessed 19 February 2018. Hindustan Times Correspondent. "Satyam Scam: All You Need to Know About India's Biggest Accounting Fraud." Hindustan Times. https://www.hindustantimes.com/business/satyam-scam-all-you-need-to-know-about-india-s-biggest-accounting-fraud/story-YTfHTZy9K6NvsW8PxIEEYL.html. Accessed 19 February 2018. The Hindu. "Satyam Scandal: Who, What And When." The Hindu. http://www.thehindu.com/specials/timelines/satyam-scandal-who-what-and-when/article-.ece. Accessed 20 Feb. 2018 Vaswani, Karishma. "Satyam Scandal Shocks India." BBC News. http://news.bbc.co.uk/2/hi/business/-.stm. Accessed19 February 2018