A scam in a legal context involves fraud, misleading, misinterpreted. Basically, it’s a deceptive practice that gains unlawful advantage, involving the property and financial loss of a victim. The one who faces the deceptive practices, whether it’s came from a known or unknown person.
The legal actions taken from both the criminal and civil law. The actions taken according to the scam of nature the criminal charges might include forgery, cheating, fraud, or breach of trust. While the civil charges include the contract law or tort law cases.
Types of scams:-
Financial scams: The financial scams mainly are obtaining money from deceptive methods. It’s a fraudulent scheme. It includes investment scams, online frauds, etc.
Corporate scams: These scams involve the fraudulent activities within the companies or any other institution. Often involving financial misreporting and insider trading.
The satyam scam is a prominent example of the corporate scam.
Online scams: This scam occurs through internet frauds involving phishing, malware attacks, and fake online stores.
One of the major scams that are famous worldwide because of their fraud, which came into one of corporate scams.
This scandal involved massive accounting fraud that was orchestrated by the founder of satyam computer services.
The satyam scandal
The satyam scandal, which came into light in 2009, let’s talk about the history of this case, basically the origin where it all began.
In 1987, B. Ramalinga Raju, along with his brother, established a company named Satyam Computer Service . It’s a Hyderabad based IT company, In 1990- 1991, this company was listed into BSE ( BOMBAY STOCK EXCHANGE). the satyam computers known as IT industries jewel. But in reality, this company is an outcome of financial crime. The diminution of satyam computers before time has an impact on the public mind deeply and raises several questions. In this scam, the highlighted one was corporate governance, which plays a significant role in shaping several protocols, for example, working on auditing committees or duties of board members.
Satyam Computers is one of the fastest growing companies in India. The growth of the real estate industry is at its peak , so Ramalingan Raju decides to jump into the real estate sector for its financial condition.
The Ramalingan Raju owns several properties across the country. In fact, Raju started owning the properties like maytes infrastructure and maytes properties in the name of their family members. The purchasing of properties Raju gets habitual of and this is all starts for the scandal.
After all of this, when Raju did not have enough money to buy more properties, he started to manipulate the satyam financial statements. For example, when the company profits about 50cr, he shows 500cr.
Basically, Raju’s company misrepresents his accounts in front of boards, stakeholders, stock exchanges, regulators, investors, and the other stakeholders. Overall, this company misled the market. Raju shows his company growing faster than the other company, which started along with Seeing all of the growth of the company, the share prices of the company also started increasing day by day. Hence, Raju and his brother started selling their shares into the stock market, and the leftover shares are in debt as a loan from the bank.
Ramalinga Raju started buying the properties aggressively on the names of their workers, too. He also owned the property of the metro line, hence for the benefit of himself. For the sake of his company, he started naming the fake invoices for showing the sales, and what about the profit? He didn’t show the profit of the sales. But he shows the fake bank account statements that the money is reserved into the bank for the company’s finance.
That’s how he attracted the attention of investors, and hence, the growth of his company’s retail prices increased.
In the 2008 recession, the real estate business was facing a crisis and the Ramalingan Raju plan flopped due to the crisis. In 2009, Raju ultimately confessed his crime that he was doing fraud, and misleading the company for his benefit. After his confession the special code of CBI announced the rigorous imprisonment to Ramalinga Raju and his brother including 7 other people. And also impose a 5cr fine on Ramalinga Raju including his brother. And other left accused are liable to pay 20-25 lacs Cash amount.
Who exposed the satyam scam?
The satyam scam was exposed by an anonymous whistle-blower who sent emails to one of the company’s directors.
Satyam scam case study: how Raju was able to get away with the scandal?
Raju got away with the satyam scam for six years by exploiting flaws in the accounting and auditing procedures and deceiving stakeholders with his power and charm. He had a network of accomplices with his brother, satyam’s managing director, and several senior executives. He also paid world bank officials and other clients to get contracts and evade inspection.
Raju also utilized his influence and reputation to gain the confidence and admiration of regulators, investors, analysts, and the media.
He depicted Satyam as a successful and ethical firm, collecting multiple corporate governance and social skills. He was also recognized for his commercial skills and entrepreneurship. He kept a low profile in a major outcry from Satyam’s shareholders and board members.
Highlights of the Satyam’s scandal :
- Falsified financial statements
Satyam inflated revenues, profits, and cash balances over several years.
Fictitious assets and non-Existent cash balances were reported. Around 94% of reported cash on the books was fake.
- Confession letter by Ramalinga Raju
Chairman Ramalinga Raju confessed to the fraud in a letter to the board, admitting manipulation over several years. Claimed he was ‘riding a tiger’, not knowing how to get off without being taken.
- Auditor involvement
Pricewaterhousecoopers (PwD) was the external auditor and accused of negligence and complicity. PwD signed off on the falsified accounts without proper verification.
- Impact on stakeholders
Satyam’s stock price crashes by over 75% in a day. Shareholders, employees, and clients lost trust.
- Government intervention
The Indian government dissolved satyam’s board and appointed a new one. Tech Mahindra eventually acquired satyam in a government overseen bidding process. The company was rebranded as Mahindra Satyam, and later merged with tech Mahindra.
- Legal consequences
Ramalinga Raju and several executives were arrested. In 2015, Raju and 9 others were convicted and sentenced to 7 years in prison. PwD was banned by SEBI ( India’s stock market regulators) from listed companies for two years.
Conclusion
The satyam scam case demonstrates human ambition influences behavior. This case majorly enhances the solid governance and their stability to stand in front of illegal activity. Securing the legislation and corporate governance are required to emerge in markets such as India. This case emphasises the strict punishment and provides regulations.
