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2009 Financial misappropriations and fraud at Satyam Computers

About 2009 Financial misappropriations and fraud at Satyam Computers

January 7, 2009

On January 7, 2009, Ramalinga Raju has submitted his resignation admitting financial wrong-doing by sending an email to the Board of Directors and the Stock Exchanges. Raju's fraud is considered the biggest in Indian Corporate history and hence the scandal is termed 'Indian Enron'. Ram Mynampati took charge as Interim CEO (pending ratification by the Board). Soon after Raju's admission, the Satyam stock price took a free fall on Indian stock exchanged and closed the day down by 77%. The BSE Sensex itself closed down by 7% after heavy selling with Realty stock getting hammered after Corporate Governance and disclosures of many companies got doubted. The SEBI announced it will probe into the recent activities at Satyam. Andhra Pradesh Chief Minister has called for a CB-CID probe into the irregularities. Security is enhanced at all Satyam facilities and police forces are deployed to ensure no untoward incident takes places.

January 8, 2009

The Interim CEO Ram Mynampati, along with his senior team spoke at a press conferance at Satyam Headquarters. Ram said he is not aware of the financial mismangement at Satyam and that all leaders are taken by surprise and shock. Having taken the role of Interim CEO, he said his team's immediate responsibility is to assess the verasity of the statement made by Raju and he and his leaders are reaching out to their stakeholders and working for business continuity. He said that the teams at Satyam are reaching to their top clients and updating them of the developments. The Top 100 Clients of Satyam contribute to 80% revenues and the top leaders are personally reaching out to them. The next level Satyam leadership is reaching out the other clients in a bid to retain the client relationships. He said that the CFO Valdamani Srinivas is not present at the press conference for personal reasons and that he was at home but has submitted his resignation to the Board of Directors which have not yet (at that time) approved the resignation. Ram said that the Satyam employee salaries for the December 08 and the first phase onsite salaries of January 09 are already honored. He said the cash levels and liquidity of the company is not 'encouraging'.

Kenneth Vianale of Vianale & Vianale said that a class action has been filed by Aekta Ben Patel in Florida on behalf of herself and all others who bought Satyam's American Depository Shares (ADS).

Andhra Pradesh Government said that the 108 and 104 emergency services that are started in association with Satyam will be taken over and maintained by the Government.

Hunton & Williams LLP, outsourcing attorneys who studied Satyam accounting scandal feels that the scandal will not be a death-knell for Indian Outsourcing and that that Satyam may survive, though perhaps in a different form.

The Central Government ordered inspection of eight Satyam subsidiaries

January 9, 2009

Minister of Corporate Affairs P C Gupta said the Indian Government has invoked section 234A of the Company's Act. This enabled the Registrar of Companies to obtain search and seizure order from the judicial magistrate in Hyderabad on January 8, 2009 at 6:00 PM. Gupta said that the SEBI and the officials of the RoC are in Satyam office and collecting and ceasing documents so that they are not forged later.

A Satyam report was out that it is not handing pinkslip to 10,000-odd employees as reported in the press. It also reported that the salaries of its 53000-odd employees for the month of January 09 will be honored. Reports say Satyam needs about Rs. 500 crores to honor salary commitments.

Rumours are out that CFO Srinivas Valdamani has attempted suicide but Satyam sources denied the reports.

As many as 20000 resumes of Satyam employees are believed to have appeared overnight on leading Indian job portals. Infosys is believed to have reported not to hire former Satyam employees into its company.

Reports say the Andhra Pradesh State Government has shows a type of 'most favored company' status to Satyam and Maytas. The Government reacted to this asking the Chief Secretary to re-check and evaluate all Governments deals with Mytas.

Satyam shares at new lows

Satyam shares that closed at Rs. 39.95 the previous trading day have hit hard yet again. The shares have hit high of Rs. 32.00 and low of Rs. 11.50 and closed the trading day at Rs. 23.85 on BSE. The script even touched Rs. 6 levels on the NSE at one point of time.

Doubts arose as to who are buying Satyam shares with a huge chunk of shares are changing hands over the last two trading sessions. L&T came out and said that it has bought 3.9 to 4% of Satyam recently and even before the Raju episode has come out. Abardeen AMC, Fidelity, Morgan Stanley are reported to have sold their holdings on January 7, 2009. LIC is believed to be still holding its shares in Satyam.

Government steps in

By evening, more developments came out when PC Gupta, Minister of Corporate Affairs stepped in and said that Government has suspended the existing Satyam board and will be replaced with a Board nominated by the Government. With this, the existing Directors cannot act as Directors and hence cannot hold the Satyam Board Meeting tomorrow. The Government-nominated board members list is most likely to be released in a couple of days as the Government is preparing the criteria for nominating the board members and seek their consent. Satyam reacted saying that they will wait and watch for the official statement from the Government and will act.

HDFC's Parek giving his personal views to a television channel said the board can comprise of members from IT industry bodies (such as NASSCOM), retired Senior ICAI members, members from legal community etc. He said that members from other IT companies cannot be brought in considering they compete with Satyam. Infosys's Pai giving his personal view felt members from IT bodies could not be brought in because all its members represent an IT organization which would be competing Satyam.

The Andhra Pradesh State Government that is considered to be a little soft and taking a wait-and-see approach has formed a team headed by a DGP to undertake investigation process. The CID team were at Satyam premises and are believed to have begun the investigation process.

SEBI summons

Ramalinga Raju was summoned by SEBI to appear before them at 4:00 PM at Satyam office. However, Raju's lawyer appeared before them and said that 'little unwell' Raju asked for 24 hours time to appear in person as he is given a very short notice. Raju's lawyer, speaking to the press, neither confirmed nor denied the whereabouts of Raju but said Raju will appear before the SEBI team at 4:00 PM on Saturday. SEBI Chairman CB Bhave said that it will be in a position to frame charges on Satyam after the investigation is completed.

Arrest of Raju Brothers

Ramalinga Raju and his brother Rama Raju surrendered and are arrested by the Andhra Pradesh Police Director General of Police (DGP) S S P Yadav. The arrests are made under Section 120B, 409, 420, 468, 471 on the charges of criminal breach of trust, criminal conspiracy, cheating, falsification of records and forgery. Police sources say that Raju has not surrendered but the police are able to arrest them though there is less clarity on this story. Sources say CFO Srinivas V is likely to be arrested on Saturday, January 10, 2009.

January 10, 2009

As announced earlier, the Satyam Board meeting of its earlier Directors is cancelled following Government stepping in. Government sources says the arrest of Rajus is a well co-ordinated action. Sources say SEBI and CID teams are interrogating Srinivas Vadlami about the scam and that he is likely to taken to police headquarters. Sources report that the Andhra Pradesh Government is lobbying for upto 3 positions in the new Satyam board.

The Raju brothers are sent to judicial custody till January 23, 2009 and are shifted to Chanchanlguda Jail. CFO Vadlamani Srinivas is interrogated at DGP Office and is later arrested by the police.

Media reports say that Bank statements are missing from the documents seized yesterday by the investigating agencies.

Employees of Satyam Computers have written to the Finance Ministry to direct Banks not to lower their credit card limits. Leading Banks ICICI Bank and HDFC Bank have sent SMSs on January 9/10 to Sayam Employees having credit cards informing them that their credit card limits are lowered.

Life Insurance Corporation (LIC) of India said it is open to be a member on the Satyam board. LIC said that big investors are intouch with one another about the developments. Satyam's largest shareholder Lazard is reported to have asked for a position on the Satyam Board to the Ministry of Corporate Affairs. Media reports say that a senior member from Lazard is flying to India to take its representation forward. The Minister said that they are reviewing it. The Ministry have given the representation to the Prime Ministers Office (PMO) which will finalize the list of members on the board.

NYSE says it is reviewing Satyam's case (along with the ADRs) and is likely to resume trading of the script on January 12, 2009.

January 11, 2009

Minister PC Gupta has held a Press Conferance on the morning at 12:00 AM and announced the names of the new Satyam Board. Dr. Deepak Parekh, Kiran Karnikand C Achuthan are named as the three members of the new Satyam board. The three members are asked to convene and discuss about their future course of action. The thee members will be independent board members and will have the authority to act in the best interest of the company. The board members are likely to meet at the Satyam Headquarters in Hyderabad on Monday, January 12, 2009. With an expert from the banking and finance section, one from the Information Technology and one from the Legal section being picked to manage Satyam, many feel the combination and selection of the candidates is the finest.

Meanwhile, business media sources feel that the Satyam board will likely be having more members, the names of which will be announced shortly. The Company Law Board (CLB) allows the Government to put upto 10 members on the Satyam board. Gupta, at the morning press conferance said, "Further appointments to the board may be made subsequently as required".

Former CFO Vadlamani Srinivas's house is raided by CID sleuths and a laptop and a hard disk drive are recovered from there. Vadlamani Srinivas will be shifted to the same jail where Raju brothers are currently lodged.

January 12, 2009

New Satyam board speaks with the press

The newly appointed Independent Directors of Satyam addressed a press conference at the Satyam Headquarters at 5:30 PM. The Directors said that their top priority is to restore confidence amongst the stakeholders. They felt the need to restate the Q3 results and hence are in the process of appointing an independent audit firm for the job. Two audit firms are already reached for the job and one amongst them is likely to be allotted the work. The Directors said that more members will be appointed by the Government shortly. They said that they will be meeting more often for the next few days but said that their job is not to manage the company on a day-to-day basis. They said that a CEO and CFO will be appointed shortly and that the company needs 'fresh blood' hinting that the two top jobs will be given to a Satyam-outside.

Considering of the bad situation in which Satyam is in at the moment, they said that no bank will be willing to give money to them unless the Q3 results are restated. Once banks get the confidence, the problem of liquidity can be well addressed. Considering that Satyam has AAA grade customers, reaching out to them and asking for advances for the receivables is another solution possible. They said that 'large amount of receivables are due' and if they come on time, liquidity with the company should be adequate.

Speaking on the status of Pricewater House Coopers, the Directors said that the appointment of auditors of the company will be decided by the shareholders at the next General Body Meeting.

The Directors said that they have no plans to talk with the Rajus for now.

Speaking on immunity from law suits, they said that Satyam has not yet asked the Government for protection / shield from the law firms but said they will require considering that the immediate job is get the company back to running.

Answering to a question on the possibility of large clients moving away from Satyam, they said that large clients run missing critical projects and such critical projects cannot moved very easily between vendors.

January 13, 2009

Analysts feel the Satyam saga shows holes in Indias corporate governance.

January 14, 2009

The board announced it launched a search to identify candidates for the positions of CEO and CFO of Satyam in order to fill the vacancies. The board also said it received on January 13, 2009, a letter from Price Waterhouse, stating that Price Waterhouse performed audits of Satyam from the quarter ended June 30, 2000, until the quarter ended September 30, 2008 (the "Audit Period"), and notifying the Board that in view of the contents of the resignation letter of B. Ramalinga Raju, Price Waterhouse's audit reports and opinions in relation to Satyam's financial statements for the Audit Period should no longer be relied upon. The board announced the appointment of Deloitte and KPMG as independent auditors to help restate the company's financial reports.

January 20, 2009

Andhra Pradesh Chief Minister YS Rajasekhara Reddy said admitted the Government has allotted 50 acres in Vizag to Satyam for developing an IT Special Economic Zone (SEZ). He also asserted that his Government will take strict action against all those responsible for the fraud.

January 22, 2009

The newly formed six-member board has met for the third time to discuss about the appointing a CEO and a CFO for the company apart from other things.

January 23, 2009

iGate said it is interested in acquiring Satyam and is in talks with few US-based PE firms. Business media sources L&T has made few blocks deals on the stock exchanges which results in the company acquiring upto Satyam's 14% (from its earlier 5%)

February 2009

Thursday, February 5, 2009

AS Murthy is named as the new CEO of Satyam. Reacting to the news, BK Modi felt the appointment of AS Murthy to the post of CEO is interim since the Board appointed by the Government is itself interim. Partho S. Datta and Homi R. Khusrokhan are named as the non-executive special advisors. In another significant development, the board confirmed that it has secured approximately $130 million in financing, which will be directed toward working capital requirements and helps the company manage several short-term financial challenges. Satyam also reaffirmed that January salaries (globally) and mid-February salaries (US-based associates) have been met from internal accruals (US-based associates are paid every two weeks).

From a legal perspective, Wachtell, Lipton, Rosen & Katz will defend Satyam against class action suits in the U.S. Additionally, Latham & Watkins, a firm that has worked with Satyam for more than eight years, will continue its dialogue with the US Securities and Exchange Commission on the organization's behalf.

Reports are out that Satyam messed up on WHO deal as well. Australian national bank National Australia Bank has removed Satyam from its IT roster and decided to cancel the second phase of a massive outsourcing project.

Updates in February 2009

Uttam Prakash Aggarwal, President of ICAI said it needs six months to determine auditors involvement in Satyam fraud. Satyam Board met on February 12 to discuss operational issues. Kiran Karnik said that Satyam is reassuring wary clients about its long-term prospects. The World Bank said it may review its ban on Satyam. On February 21, 2009, the conpany reported to have signed deals worth $250 million since Jan. 7 and that it is on recovery course. The board is reported to have: 1. Formally indicated to the Indian Ministry of Corporate Affairs that it intends to remove Pricewaterhouse Coopers (PWC) as statutory auditors. PWC has also been notified, and resigned from the role. The board will soon appoint new statutory auditors. 2. Authorized Murty to complete and implement a plan to retain key associates and endorsed plans already under way to reduce expenses and optimize profits. 3. Explained how it is using its recent infusion of $130 million. "It is being used to meet immediate and near-term operating requirements, including payments to vendors," said Board Member T.N. Manoharan. "Furthermore, we are now receiving unsolicited offers from banks for additional funding."

Updates in July 2009

The judicial custody of Ramalinga Raju and other accused ends on July 22, 2010.

Updates in August 2009

After failing to detect the Satyam Computer scam, the Ministry of Corporate Affairs is reportedly planning to adopt new norms to nail corporate frauds.

Updates in September 2009

By the end of September 2009, the ICAI has found that Satyam auditors 'prima facie' guilty of misconduct.

Court extends judicial custody of Satyam accused till July 22
A local court on Wednesday extended the judicial custody of former Satyam Computers chairman B Ramalinga Raju and other accused in connection with the 7,800 crore fraud at the IT major till July 22. ANI

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