Hyderabad/Bangalore: In a startling confession that shocked his peers and sent the stock market tumbling, Satyam Computer Services Ltd chairman Byrraju Ramalinga Raju confessed to cooking the company’s books over several years to the extent that Rs5,040 crore of cash on the company’s balance sheet doesn’t exist.
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Raju’s confession and resignation were communicated in a letter addressed to the company’s board and caps several weeks of trouble for the software services firm that began on 16 December when Raju got Satyam’s board to agree to buy two other companies his family owned for $1.6 billion.
The move, the letter says, was the last-ditch attempt to get some real assets into Satyam’s books in place of virtual money.
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Later in the day, Raju’s brother and the company’s managing director B. Rama Raju also resigned.
The confession and the magnitude of the accounting irregularities point to serious lapses in corporate governance and raise questions about the role of Satyam’s external auditor Price Waterhouse and of the board and especially the independent directors of the company, many of whom have resigned in the past weeks.
C.B. Bhave, the head of India’s stock market regulator Securities and Exchange Board of India, or Sebi, and Prem Chand Gupta, the minister for corporate affairs, both said separately that they would launch an investigation into the matter and take “co-ordinated action”.
Photo: Madhu Kapparath / Mint
Since Satyam is listed on the New York Stock Exchange, the US Securities and Exchange Commission, too, could take action against the company. The US listing also makes Satyam and its directors vulnerable to lawsuits in that country. It also means that Satyam’s CEO and CFO (Srinivas Vadlamani) signed off on the accounts in keeping with the US Sarbanes-Oxley Act. The violation of this is punishable by fines and imprisonment for up to 20 years.
Analysts were unclear on the future of the company, although some said it could be taken over by a rival or a private equity firm—either as a whole or in parts.
Even as the firm’s interim chief executive Ram Mynampati sent out a mail reassuring employees, research firm Forrester said up to 50% of Satyam’s clients could chose to take their business elsewhere, a move that will likely benefit Satyam’s rivals such as Infosys Technologies Ltd, Wipro Ltd and Tata Consultancy Services Ltd.