The Satyam Scandal
Name: Sakshi Pandey
Roll No.: M1944
College: FCRIMS
Satyam Scam was the big corporate scam that occurred in India in 2009 and is also regarded as “Debacle of the Indian Financial System”. After studying about the Satyam Scam in detail, this is best what one can explain about it. Read to know in detail about Satyam Scam.
IT Company name Satyam Computers was started by Ramalinga Raju and his brother in law in 1987. Raju was Harvard Graduate and an impressive personality. Satyam was Hyderabad based company. In 1991-92 Satyam computers was listed on BSE (Bombay Stock Exchange) and in 2001 it was listed on NYSE (New York Stock Exchange). Satyam Computers was one of the fastest growing companies of India and hence Satyam Computers as well as Ramalinga Raju received many awards during its growth years.
During the same period the Real Estate was on Boom and hence Raju was attracted towards real estate market. The property rates in Hyderabad were growing rapidly so Raju aggressively started buying the land properties in Hyderabad and nearby areas. Due to aggressive buying of properties Raju was in short of funds (money) hence to generate more funds he started to manipulate the financial statements of Satyam Computers. For example, If Satyam had the actual profit of Rs60 crore then in financial statements Raju used to show the profit of Rs 600 crore so as to show that Satyam is growing very rapidly.
Due to this fake rapid growth and fake strong financials the price of share of Satyam was growing rapidly. Raju and his brother was selling the shares of Satyam on this high price so as to raise the money to buy properties. Raju opened 365 new companies to buy the properties. He used to buy the properties under the name of his family members, relatives, friends etc. Raju used to make his farm workers (whose monthly income was not more than Rs5000) the Directors of his newly opened companies and used to buy the properties under their name.
Raju plan was that the rates of the properties will grow in multiples after some time, after that he will sell those properties and from the money earned, he will balanced the gap that he has created in financial statements of Satyam.
Because of manipulating the financial statements of Satyam as well as showing the fake rapid growth for years, the price of share of Satyam was growing very rapidly. Taking advantage of this, the promoters of Satyam used to sell those shares on high price to earn profit. In 1999 the promoters of Satyam hold 24% of shares, while in 2008 it was reduced to 2%. As the days were passing the gap between the actual figures and fake figures was increasing resulting into a huge amount.
Due to recession in 2008, the rates of properties decreased drastically and Raju’s plan of selling properties at high rates failed. Raju was in great trouble and to escape from this he made a new plan. According to this new plan, Satyam will buy the two companies that are Maytas properties and Maytas Infra (both companies of Raju’s family members). They will buy the companies on paper but in real there will be no cash transactions so as to balance the fake figures and actual figures in accounts of Satyam. Satyam’s board of directors approved the plan 16th Dec 2008 and without taking the permission of Share Holders, Raju sanctioned the deal. But investors of Satyam were not happy and due to this price of stock of Satyam decreased. One investor from U.S filed Lawsuit on Satyam due to which the price of Satyam was decreased by almost 55% on NYSE.
Due to increasing pressure of investors on Raju, he cancelled the plan of buying Maytas Infra and Maytas properties. This was last chance for Raju to fill the gap between actual and fake figures of Satyam and stop this scam for revealing, but seeing it failed, on 7th Jan 2009 he confessed to SEBI that he was manipulating the financial statements of Satyam and on 9th Jan 2009 Raju and his brother were arrested.
After this scam, government appointed new Board of Directors on Satyam. In April 2009 Tech Mahindra purchased the 51% shares of Satyam Computers and named it Mahindra Satyam. Finally in June 2013, Mahindra Satyam merged in Tech Mahindra.
According to CBI, Raju was doing money laundering. He used to send the money in European Countries and then re-route them back in India. ED (Enforcement Directorate) filed the case of money laundering on Raju, his 166 companies and 47 other people and sealed the properties of Raju and his Family. SEBI filed the case of Insider Trading on Raju and ordered him to return the profit of Rs1850 crore that he earned from Insider Trading with 12% interest and banned him for 14 years to deal in securities market. Finally on 10th April 2015 CBI Court sentenced 7 years of imprisonment to Raju, his brother and many other people associated in scam.
Before this scam was revealed, Satyam was recognised as 4th largest IT Company of INDIA and usually tagged as “IT Crown Jewel of INDIA”. Satyam’s stocks were included in Sensex and Nifty but were removed on 9th Jan 2009.After scam was revealed, Satyam’s stock decreased from Rs170 to Rs6.50 due to which its investors suffered the loss of almost Rs14162 crore. LIC was institutional investor in Satyam and suffered the huge loss of Rs950 crore.
The meaning of word Satyam in Sanskrit is ‘Truth’. But there was no truth in operations of Satyam. To earn the money Raju did many illegal activities like Money Laundering, Insider Trading and Accounting fraud due to which many common investors of Satyam suffered a lot.There is one thing for us to learn from this scam, that if promoters of any company are selling their shares then always check why they are doing so and mostly do not invest in such companies.