DELVING INTO THE BIGGEST SCANDAL: THE SATYAM SCANDAL


Author: Akshita Bokde, Jagran Lakecity University, Bhopal

To The Point:
One of the largest scandal witnessed by our country in the IT Department is the Satyam Scandal which was a very well thought master-minded scandal which was done by Mr. Ramalinga Raju, the principal architect and presiding chairman of the infamous Satyam corporate fraud, was the founder and chief executive force behind the organization. This scandal led to a massive breakdown in the Stock Market as he was seen as one of the Inspiring Leaders in the corporate world. Because of this scandal a lot of shareholders lost their money. However, this scandal brought to the forefront the various shortcomings into the Indian Corporate Governance and its laws. Satyam Scandal primarily centers on the ingenious orchestration of Mr. Ramalinga Raju who very thoughtfully portrayed The Satyam Scandal predominantly centers around the calculated orchestration of Mr. Ramalinga Raju, who meticulously projected Satyam as one of the fastest-growing enterprises. Through this calculated deception, Mr. Raju succeeded in attracting a vast pool of investors, thereby engineering an inflated perception of the company’s financial worth. This scandal came into limelight when Mr. Raju himself confessed by writing a letter to the Directors of the Company mentioning about the scandal which was going on for around 24 years and soon the company’s share market price dropped  from Rs.158 to Rs.6.5 in no time.

Abstract:
Mr. Ramalinga Raju was the biggest inspiration and on one night he decided to confess that he has been doing scam for 24 years. This scandal has been set as an example why people should not fall for clamp. Mr. Raju was so popular that he was called as the ‘Bill Gates of India’. Four months before he wrote that letter he was awarded with the Best Award for Corporate Governance by International Company for inspiring youths. Mr. Raju belonged to a family of farmer. After doing his MBA from Howon University in USA, he returned to India. He first opened a restaurant business in which his father also helped as he saw that he had a keen interest for a business. But this eventually failed. After opening his restaurant business he was greatly inspired by the Late Dhirubhai Ambani so he opened a cotton business which also flopped in some time. Once he was sitting with his friends when he got the idea that the IT sector will be on a boom in some years. So he along with this 10 engineers formed the Satyam Computers. So this is how Satyam Computer was formed.


The Proof:
In 1888 Mr. Raju formed one more company by the name MAYTAS Infrastructure which was a company dealing in construction. The name MATYAS is itself very interesting, if you do SATYAM upside down then you will find the name of MATYAS. So from this it can be inferred that the Satyam computers were already planning something which was fishy. The entity MAYTAS was primarily established as a construction-focused firm, operating within the realm of real estate development and infrastructure projects. The interesting part is that at this particular time The Hyderabad Metro Project was being launched. The information of this was received by Mr. Raju well in advance. So he knew that the prices of the land near it would definitely increase so he started buying the properties there and by this the thought he will earn a lot of money. So he started acquiring it through MATYAS but then there came a huge problem.

The Breakthrough in Satyam Scandal:
This was a meticulously devised scheme orchestrated by Mr. Raju with calculated precision but what he didn’t expect that an Income breakthrough would hit more than 150 to 180 500 Fortune companies and these all companies were the clients of Satyam and MATYAS. In 1999, another problem came which was the YK2K problem in which it was believed that all the computers would crash because the computer system after 99 would change to 00 which will lead to huge income crash and because of time zones. Mr. Raju solved this problem and soon his face became so popular and his Company steadily progressed and he became a Billionaire. By this time some people started having doubts and they also found MATYAS a little shady because Mr. Raju formed around 340 small companies and through these companies he did all the transaction and circulated the money. Through MATYAS they used to buy all the real estate. There’s an obligation on the companies in which they show all their expenses to avoid tax liability. Satyam computer showed that they have employed a lot of employees and what is worth noting that the salary of these employees was Rs5000 and the directors of these 340 companies were watchman, servants, guards, etc.

Story Ahead:
Mr. Raju was aware that his company got listed in the year 1991 and they thought if they made a perception in the minds of people that Satyam is doing very well and achieving all the heights, more people would invest in it leading to the share valuation of the company to an increase. They will earn money through this and they will channelize all the money in buying properties thought MATYAS. Once the property value increases they will sell the property and whatever margin they will be left with would be their profit.
But this didn’t end here, there cam one more problem which was the Lehman Brothers crisis which came in the United States in the year 2008. Because of this depression, it hugely affected the real estate and it was spreading globally. This led to the downfall in the prices of the real estate so now the value at which Mr. Raju had acquired land with the expectation of appreciating value; however, a subsequent decline in its valuation undermined the viability of his plan. Furthermore, Mr. Raju engaged in additional unethical practices, including the deliberate manipulation of Satyam Computer’s financial statements to exaggerate the company’s profitability.Certain more practices were being done by Mr. Raju which included that he was manipulating the profit of the Satyam Computer. Not only this he also forged the MIA system of the Satyam Computer and he could only change it, he showed the value to the 10 time times of the real value. The Department Head in the company were not aware of their operations and nor their revenue. All this information rested with Mr. Raju only. Another thing in which he was engaged was Insider Trading in which he used to inflate his profits and ties up leading to the increase in the value of the company and due to which more and more people were investing.

The Problem:
In the year 2008, the Company was doing very badly so he thought of another plan which was to takeover MATYAS through Satyam Computer so that all his real estate will come under his name and he will be in a situation of No Profit No Loss. But this plan backfired upon him as the Shareholders started doubting as Mr. Raju as he was passing the resolution without the consent of the Shareholders and he was passing it in very haste. Ultimately, he didn’t have the approval. So for the last time he tried to save himself he went to the DSP Kothwari and told him everything about the situation but he refused and warned him to reveal everything to everyone.
Frightened by this, Mr Raju became tensed and he thought of confessing himself so he wrote a letter in which he mentioned that the Satyam Computer was not in profits and how he has been manipulating the accounts of the company. Soon the price of his share fell and hit he rock bottom.



Aftermath:
Now that the company had hit the rock bottom. The government started to start the bidding of the company. Government didn’t want that the 4th largest company should go in drain. So now Tech M share price increased and the employees of the Satyam were saved by Tech M and the shareholder of Satyam incurred huge loses. Before writing the letter to the directors of the company he sold off all his shares as he was aware that the company would suffer a major downfall. Moreover, his auditor was also punished and banned for 2 years for handling and manipulating the accounts of the Company.

Learnings from this scandal:
In respect of companies, flame burnt red nature is not good for the sustenance of the company.
People before investing should be aware of the company is the people would have been vigilant enough this scandal could had been avoided.
The corporate governance laws must be very rigid to ensure regular check-ups of the company.
If the market is hyping something you don’t need to follow it, you should do your own research.

FAQS


Q1. In which year did the Satyam Scandal took place?
On 7th January, 2009.
Q2. What is the meaning of the word Satyam?
The word Satyam comes from a Sanskrit word which means ‘Truth’
Q3.  What’s the current status of Satyam now?
Now the Satyam Company is owned by Tech Mahindra and it now renamed as Mahindra Satyam.


Q4. What was the major issues raised in the Satyam Scandal?
This scandal raised major question on the regulation of Corporate Governance in India, weakness in the Accounting practices and the regulatory mechanism, the role and the accountability of the Auditor.

Q5. What was the designation of Mr. Raju in the Satyam Scandal?
He was the CEO and the founder of Satyam Scandal.

  

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