Pursuing Satyam

Ramalinga Raju and his accomplices deserve exemplary punishment

Updated - November 27, 2021 06:55 pm IST

Published - August 10, 2014 09:17 pm IST

More than five years after Corporate India’s biggest scam surfaced, a CBI Special Court is today scheduled to announce a date to pronounce its judgment in the Satyam scandal.

Ramalinga Raju, then Chairman of Satyam Computer Services, dropped a letter-bomb on January 7, 2009, on unsuspecting investors, employees and the government confessing to a Rs.7,136-crore fraud committed by him and his close circle of relatives and employees at the company. The revelation sent shockwaves across the market and Satyam shareholders lost more than Rs.14,000 crore collectively as the market — rightly — took the share to the cleaners. The government scrambled to save the company and protect the interests of the over 53,000 employees that Satyam then had on its rolls. In a rescue job well done, a special board headed by Deepak Parekh and comprising three others — Kiran Karnik, C. Achuthan and T. N. Manoharan — quickly restored order and sold the company to Tech Mahindra, which subsumed Satyam into itself last year.

But saving the company, its business and employees was only half the job; the other, equally important one before the government was to get to the bottom of the scandal — the why, what and how of it — and quickly ensure the perpetrators were punished. Mr. Raju, his brothers Rama Raju (then managing director) and Suryanarayana Raju, Satyam’s then CFO Vadlamani Srinivas, internal auditor V. S. Prabhakara Gupta and G. Ramakrishna, then VP (Finance), stand accused of falsifying bank statements, inflating revenues, faking invoices and FD receipts and filing false income tax returns with the objective of conveying a wrong picture to shareholders, employees and the markets.

‘Riding a tiger’ The sheer audacity of what they did is evident from investigations done by market regulator Securities and Exchange Board of India (SEBI) which stumbled upon fake invoices and bank statements dating back by many years. Mr. Raju, once a poster-boy of the IT industry and recipient of the Golden Peacock award for exemplary standards of corporate governance, had started falsifying Satyam’s accounts in 2001 and continued to do so until 2008. “It was like riding a tiger, not knowing how to get off without being eaten,” was how he famously put it in his confession letter sent to the Bombay Stock Exchange; he subsequently disowned the letter during the trial.

As many as 7,561 fake invoices — labelled ‘S’ series — for a total value of Rs.4,782.75 crore were generated by Mr. Raju and his accomplices between April 2003 and September 2008 at the rough run rate of 300-400 invoices a quarter. According to SEBI’s report, Satyam would have posted a loss in the third quarter of 2007-08 itself were it not for the false revenues generated from the fake invoices.

In an example of how coolly the fraud was perpetrated, Mr. Rama Raju asked one of his business heads to prepare interesting product ideas that could be pitched to product development companies. When the executive came up with such a proposal, Mr. Rama Raju immediately informed him that he had managed to find a customer for the product and even produced a purchase order. The only problem was that both the order and customer were fakes and the executive had been used to come up with an idea to generate fake revenues.

SEBI uncovered 27 such fake invoices — labelled ‘H’ series — raised between May and October 2006 in the names of non-existent customers such as AutoTech Service Inc, Cellnet Inc and Hargreaves Inc. These invoices were between $1.32 million and $3.8 million each and cumulatively were worth $58.16 million in revenue. The company’s billing system was subverted to introduce the fake invoices into the revenue stream. Care was taken that these invoices showed up only to select people and the amounts were removed from the outstanding debtors list.

False bank balances Shocking as this is, there is worse. Since 2001, Mr. Raju and his accomplices were producing false proof of balances in the various bank accounts that Satyam maintained. The balance in the company’s account with Bank of Baroda in New York was shown in its books as Rs.1,782.60 crore as on September 30, 2008 when the actual balance in the account as certified by the bank was just Rs.50.72 crore. Similarly, the total amount in fixed deposits was massaged to show a figure of Rs.3,318.37 crore when it actually was just Rs.9.96 crore.

It is clear that a systematic method to doctor monthly bank statements and produce fake confirmation letters from banks was followed by Mr. Raju and his accomplices. When the internal audit department asked questions, its access to a critical part of the accounting system was cut off. What transpired at Satyam from 2001 to 2008 was outright fraud perpetrated by Mr. Raju.

The long process of law has taken five years and eight months and we may not be at its end yet. Even if the trial court gives its verdict in the next few days, Mr. Raju is bound to appeal if found guilty. And he may take it slowly through the system up to the Supreme Court. He has spent over two years in jail, a lot of that in hospital undergoing treatment for a hepatitis C infection. But if what SEBI has uncovered is true and the CBI’s case holds up in Court, Mr. Raju and the others would be liable to spend a long time in jail. Compare the Satyam case with what happened with some celebrated instances of similar fraud in the U.S. Bernie Madoff, who made off with $65 billion of investor money was handed out a 150-year jail sentence in June 2009, within three months of the scandal coming to light. The assets he had accumulated were sold off to repay at least a part of what he owed investors. Jeffrey Skilling, former president of Enron was convicted to 24 years in jail in 2006, soon after the scandal surfaced. In recent times, Raj Rajarathinam, founder of Galleon Inc., and Rajat Gupta were tried and convicted in an insider trading case in quick time. Is it too much to expect similar alacrity from our law enforcement agencies and the courts? SEBI took five years before coming out with its order last month. Why did it allow the guilty to adopt delaying tactics for so long? Similarly, the court case ought to have proceeded faster and Mr. Raju and his accomplices thrown into jail by now. After all, don’t they say that justice delayed is justice denied?


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