Hyderabad: A special CBI court sentenced former Satyam chief B Ramalinga Raju and his brother on Thursday to seven years in jail and fined them Rs 5.5 crore each for forging documents and falsifying accounts in the country’s biggest-ever corporate accounting fraud scandal.
Raju, once the poster boy of the IT industry, fell from grace in 2009 when he confessed to shareholders about overstating profits for years and inflating the company’s balance sheet, sending shockwaves through the sector.
He has already spent 32 months in jail in connection with the scam that caused an estimated loss of Rs 14, 162 crore to investors, according to the Central Bureau of Investigation.
“I am of the opinion that a case involving economic offences, having a deep-rooted conspiracy and causing a huge loss of investor money, needs to be viewed seriously and considered as grave offences affecting the reputation of the corporate system of the country as a whole and the economy of the country. It is not a fit case for taking a lenient view on the quantum of sentence,” judge B V L N Chakravarthy said, rejecting a plea of leniency because of Raju’s philanthropic activities.
Apart from the former Satyam chief and his brother Rama Raju, eight others — including former chief financial officer Srinivas Vadlamani, former PricewaterhouseCooper auditors S Gopalakrishnan and Talluri Srinivas — were also sentenced to seven years rigorous imprisonment and fined over Rs 25 lakh each. All 10 accused in the case were convicted of criminal conspiracy, cheating and breaching public trust.
Raju’s confession came as a jolt for the industry that attributed his success to dedication and hard work in Hyderabad, where joining Satyam used to be a craze among techies.
“The concern was that poor performance would result in a takeover. It was like riding a tiger, not knowing how to get off without being eaten,” he wrote in his letter to shareholders on January 7, 2009.
Two days later, the board of the then fourth-largest Indian IT firm was dissolved and market regulator Sebi initiated a probe that found the company had misrepresented its accounts to its board, stock exchanges, regulators, investors and all other stakeholders. Even basic facts such as revenues, operating profits, interest liabilities and cash balances were grossly inflated to show the company in good health.
Raju was arrested the same day and sent to prison before the Supreme Court granted him bail in November 2011. Tech Mahindra bought the Hyderabad-based Satyam in April 2009, saving it from collapse
Satyam scam: All you need to know about India’s biggest accounting fraud
What is the Satyam scam about?
It is about corporate governance and fraudulent auditing practices allegedly in connivance with auditors and chartered accountants. The company misrepresented its accounts both to its board, stock exchanges, regulators, investors and all other stakeholders.
Is this an accounting fraud, a market manipulation/fraud or both?
It is a fraud, which misled the market and other stakeholders by lying about the company’s financial health. Even basic facts such as revenues, operating profits, interest liabilities and cash balances were grossly inflated to show the company in good health.
Who is to blame here? The promoters?
The promoters are primary culprits, although it is almost impossible to misrepresent such facts without the connivance of the auditors and some executive board members. Independent directors, it seems, were kept in the dark about the actual books of accounts.
What about the auditors?
The role of external third party auditors, who were tasked to ensure that no financial bungling is undertaken to carry out promoters’ interest or hide facts, have also been brought to question.
Anatomy of a fraud
1. Maintaining records
· Raju maintained thorough details of the Satyam’s accounts and minutes of meetings since 2002.
· Raju stored records of accounts for the latest year (2008-09) in a computer server called “My Home Hub.”
2. Fake invoices and bills
· Details of accounts from 2002 till January 7, 2009 – the day Raju came out with his dramatic, five-page confession – were stored in two separate Internet Protocol (IP) addresses.
· Fake invoices and bills were created using software applications such as ‘Ontime’ that was used for calculating hours put in by an employee
· A secret programme was allegedly planted in the source code of the official invoice management system creating a user id ‘Super User’ with the power to hide or show the invoices in the system.
3. Web of companies
· A web of 356 investment companies was used to allegedly divert funds from Satyam.
· These companies had several transactions in the form of inter-corporate investments, advances and loans within and among them.
· One such company, with a paid up capital of Rs 5 lakh, had made an investment of Rs 90.25 crore and received unsecured loans of Rs 600 crore.
4. Why did he need the money
· The cash so raised was used to purchase several thousands of acres of land across Andhra Pradesh to ride a booming realty market.
· It presented a growing problem as facts had to be doctored to keep showing healthy profits for Satyam that was growing in size and scale.
· Every attempt made to eliminate the gap failed.
· As Raju put it, “it was like riding a tiger, not knowing how to get off without being eaten.”
· Cashing out by selling Maytas Infrastructure and Maytas Properties to Satyam for an estimated Rs 7,800 crore was the last straw. The attempt failed and Raju made the stunning confessions three weeks later.
