It has been over a decade since Ramalinga Raju’s Satyam Computers shook the Indian markets. One of India’s fastest growing IT companies, then the 4th largest, disappeared in thin air, with billions in market cap lost. This is the story of India’s Enron.
In 2007, Ramalinga Raju was named as the Ernst & Young Entrepreneur of the Year. In the same year, his company also bagged the contract to be the official IT services provider of the FIFA World Cups in 2010 and 2014. The company had clocked over 2 billion dollars in revenue and had over 50,000 employees. And then, on 7th January 2009, Raju sent off an email to SEBI, confessing to inflating the cash and bank balances of the company.
As financial frauds go, this one was pretty uncomplicated and easy to pull off. The company’s top management simply cooked the company’s books by overstating its revenues, profit margins and profits for every single quarter over a period of five years, from 2003 to 2008.
They wanted to project a perpetually rosy picture to investors, employees and analysts and to achieve this, they made up deals with fictitious clients and introduced over 7,000 fake invoices into the company’s computer systems to record sales that simply didn’t exist. However, when the actual money did not come from these fictitious clients (inevitably), it created a massive hole in Satyam’s balance sheet.
Finally, the company started to run out of cash, and left Raju with little option but to confess about his wrongdoings. The CFO and the internal and external auditors played the blame game when asked how they could not notice or flag a fraud of this stature.
Sadly, the investors could never get their money back. Satyam was taken over by Mahindra and a new company, Mahindra Satyam was made (which was later merged into Tech Mahindra). In 2013, the ED filed charges against Raju and 212 for money-laundering. Raju was sentenced to a prison, a hefty fine and was barred from the capital markets for 14 years.
Moreover, in 2018, SEBI banned all entities practicing as chartered accountants in India under the Price Waterhouse (PwC) brand from auditing listed companies over the firm’s role in the fraud for two years.
Image credits: Miro.medium
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