Satyam : The Story of White Collar Fraud

Satyam : The Story of White Collar Fraud

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Satyam, the IT company that rose to the pinnacle at a record pace, the company that successfully managed IT through the FIFA world cup in South Africa in 2010 is a story of white collar fraud. It is a story of how a market can be played through bogus projects and made-up revenues.

Byrraju Ramalinga Raju, the founder chairman of Satyam was one of the brains behind the fraud. He conspired with other executives to work out the nuances of market jugglery and successfully came out to increase the share demand multiple fold and thereby increase the value of the company.

He is now convicted and behind bars. He has to cough up an excess of 3000 crores rupees and is barred from participating in market transactions for 14 years.

Internal and external financial auditors review and audit the bank statements on a monthly, quarterly and yearly basis. The bank statements reflected revenues coming in, and expenditures going out. Auditors were happy to pass it then, but it has now emerged that the bank statements were forged. Signatories on these statements are either made up, or not on rolls of the bank at the time when it was issued.

There were several fixed deposit accounts that were accounted for during the audits – but most of them were found to be fakes without account number in some cases.

The false revenues reflecting in these bank accounts were substantiated by fake invoices generated by the company. The inquiry led by SEBI confirms that 7561 invoices were faked using the invoice management system. These fake invoices amount to 4800 crores rupees over a period of five years (2003-2008).

Sometime before the fraud came to light, one of the internal auditors had shown interest in one of these fake invoices. He was immediately put into his place and removed authorization from further accessing financial documents of the company.

It was also reported that pseudo teams were formed to work on these fictitious projects and people on the project did nothing but sit around.

“I am now prepared to subject myself to the laws of the land and face consequences thereof” – Raju confessed in 2009.

By overstating the cash, revenue, profits and debtor position, the share value of the company hit the roof in record time. Raju and other founding members dispensed of their shares during this time and made killing profits. They also pledged some of the shares to raise more money.

To add to this, the company announced a bonus share for every share held to all its investors in 2006. This move gave the investors further confidence that the company was doing wonderfully well, and the share price increased substantially. In 2008, shares went up again when the company announced buy back.

According to the investigating authorities, the fraudsters made close to 2000 crores rupees. The penalty adds a further 12 percent annual interest on the fraud money.

Since the fraud came out in the open, Satyam has been acquired by Tech Mahindra, and was renamed as Mahindra Satyam before getting merged with the parent company.

Read Further:

Wikipedia

Forbes

WSJ

About the author

Abhinav Kaiser is an author and a management consultant. He has authored Become ITIL Foundation Certified in 7 Days and Workshop in a Box: Communication for IT Professionals. He works as a consulting manager for a top consulting firm. He advises businesses, organizations and enterprises in the areas of DevOps, IT service management and agile project management frameworks. Social Media : Facebook | LinkedIn | Twitter | Google Plus

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