WHITE COLLAR CRIMES WITH SPECIAL REFERENCE

TO
SATYAM SCAM
 SATYAM COMPUTER SERVICE
LIMITED
Satyam Computer Services Limited was founded in
1987 by Mr. B Ramalinga Raju.
The company offers consulting and information
technology services spanning various sectors,
including engineering and product development,
supply chain management, client relationship
management, business process management and
business intelligence.
 The company was listed with New York stock
exchange, National stock exchange, and the
Mumbai stock exchange. In June 2009, the company
unveiled its new brand identity Mahindra Satyam
 Who is B. Ramalinga Raju?
Ramalinga Raju was born on September
16, 1954. A traditional agricultural family
of the KSHATRIYA (RAJU) Community of
Andhra Pradesh.
He founded Satyam Computers and was
its Chairman until January 7, 2009 when
he resigned from the Satyam board after
admitting to corporate fraud.
 Satyam was until recently perceived to be
amongst the top Indian IT vendors.
Raju has admitted to overstating the
company's cash reserves by USD$ 1.5
billion. Later, a person involved in the
investigation of the company said that
the company's assets were not inflated,
but instead siphoned off by Ramalinga
Raju.
Raju is currently held in Hyderabad's
Chanchalguda jail on criminal charges
including fraud, forgery, cheating,
embezzlement and insider trading.
 Career of B. Ramalinga Raju
He was first businessman in the field of
construction and textiles.
Raju founded Satyam in 1987.
He started an satyam computers with 20
employees in 1987.
Satyam was listed in INDIAN STOCK EXCHANGE
in 1991.
Listed in NEW YORK STOCK EXCHANGE in 2001.
Satyam was listed in UNESCO(amsterdum) in
2008.
There were 52000 employees working in
Satyam in september 2008
 Awards
Ernst & Young Entrepreneur of the Year
Services Award 1999.
Dataquest IT Man of the Year Award 2000
Asia Business Leader Award 2002
Ernst & Young Entrepreneur of the Year
2007 (revoked after the fraud was
confessed)
Golden Peacock Award for Corporate
Governance 2008 (revoked after the
fraud was confessed)
Employees spread over many countries
 The Entire Story

Ramalinga Raju founded Satyam Computers

in 1987 and was its Chairman until January 7,
2009 when he resigned from the Satyam board
after admitting to cheating six million
shareholders.
After being held in Hyderabad's Chanchalguda
jail on charges including cheating,
embezzlement and insider trading,
Raju was granted bail on 25.3.2011. Raju was
granted bail on condition that he should report
to the local police station once a day and that
he shouldn't attempt to tamper with the current
evidence
 A botched acquisition attempt involving
Maytas in December 2008 led to a plunge
in the share price of Satyam.
In January 2009, Raju indicated that
Satyam's accounts had been falsified
over a number of years.
He admitted to an accounting dupery to
the tune of 7000 crore rupees or 1.5
Billion US Dollars and resigned from
the Satyam board on January 7, 2009.
 What crime he has
constituted?
1. Raju and his brother, B Rama Raju, were arrested by
the Andhra Pradesh police on charges of breach of
trust, conspiracy, cheating, falsification of
records.
2. Raju has mislead various investors.
3. Raju had also used dummy accounts to trade in
Satyam's shares.
4. He has violated the insider trading norm.
5. Funds from Satyam were diverted to Maytas
6. On 22 January 2009, CID told in court that the actual
number of employees is only 40,000 and not 53,000 as
reported earlier and that Mr. Raju had been allegedly
withdrawing INR 20 crore rupees every month
for paying these 13,000 non-existent employees.
 In Venture Global Engineering vs
Satyam Computer Services Ltd 2010
(8) SCC 660 On being questioned by
criminal investigation department of the
Andhra Pradesh police, Mr. Raju
reportedly admitted to using Satyam
(respondent no.1) money for buying
prime land in and around Hyderabad.
Ten Imaginary fixed deposits Raju
admitted that Satyams fixed deposits
which supposedly grew from Rs. 3.35
crore in 1998-99 to a massive Rs.
3320.19 crore in 2007-08 are all fake.
 Reasons for Satyam Scam:-
1. Raju wanted to take over his MAYTAS
INFRA and MAYTAS PROPERTIES.
(company of his sons).
2. He was blamed that he was using the
funds of the investors for the family
business.
3. World bank had banned the satyam to
take any services for 8 years (due to
illegal profit and lack of essential
document).
 Societys Reaction
The people of his native village, Garagaparru,
hail the development works undertaken by the
Raju Foundation, the charitable arm of Satyam.
The Citizens for a Better Public Transport in
Hyderabad (CBPTH) demanded a CBI inquiry
into the process of how Maytas bagged the
Hyderabad Metro Rail project.
Analysts in India have termed the Satyam
scandal India's own Enron scandal.
Some social commentators see it more as a part
of a broader problem relating to India's caste-
based, family-owned corporate environment.
 HOW THIS SCAM HAS RELATION
WITH MAYTAS

Maytas refers to a group of companies

founded by B. Ramalinga Raju. It includes
Maytas Properties and Maytas Infra Limited.
A property development company founded in
2005.
Maytas Infra Limited: An infrastructure
development, construction and project
management company. Maytas Infra was
originally run by Satyam Computer Services
 It came under the scanner due to its
association with B. Ramalinga Raju.
Various agencies, including the state
Crime Investigation Department, probed
the Maytas affair after B Ramalinga Raju
admitted to serious financial scam in
Satyam Computer.
There were allegations that funds
from Satyam were diverted to
Maytas, causing the Government
agencies to verify the infrastructure
companys records as well. .
 In August 2009, Infrastructure Leasing &
Financial Services replaced B Ramalinga Raju
as promoter of Maytas Infra.
Turning point:- In wake of the Satyam scam,
the Citizens for a Better Public Transport in
Hyderabad (CBPTH) demanded a CBI inquiry
into the process of how Maytas bagged the
Hyderabad Metro Rail project.
The CBPTH convener C Ramachandraiah
alleged that the state government had been
favouring Maytas for infrastructure projects.
The Andhra Pradesh government has had paid
Rs. 1,800 crore to Maytas Infra towards works
under the irrigation department's Jalayagnam
project.
 On 8.7.2009 the state government of
Andhra Pradesh forced to end its
unprecedented generosity and cancel the
concession agreement with the group on
the Rs 12,132-crore Hyderabad Metro Rail
project.
On July 21, 2009, a case was registered
against the promoters of the company by
the Hyderabad police under Section 406
(breach of trust) and Section 420
(cheating) of the Indian Penal Code
 CONSEQUENCES
Before the scandal its share price was Rs 300
in oct 2008. Just after this scandal the share
price go down to Rs 6.30.
On 10 January 2009, the Company Law Board
decided to bar the current board of Satyam
from functioning.
Bank of America and State Farm Insurance
terminated its engagement with the company.
Credit Suisse suspended its coverage of
Satyam. The Credit Suisse Group AG
(SIX:CSGN, NYSE:CS) is a Swiss multinational
financial services company headquartered in
Zurich, Switzerland.
 SEBI, the stock market regulator, also
said that, if found guilty, its license to
work in India may be revoked.
The New York Stock Exchange has halted
trading in Satyam stock
India's National Stock Exchange has
announced that it will remove Satyam
from its S&P CNX Nifty 50-share index.
Satyam's shares fell to 11.50 rupees on
10 January 2009, their lowest level since
March 1998, compared to a high of 544
rupees in 2008.
 Satyam was the 2008 winner of the
coveted Golden Peacock Award for
Corporate Governance under Risk
Management and Compliance Issues,
which was stripped from them in the
aftermath of the scandal.
Present time its share price is 107.89.
Mahendra Satyams market growth is
7,800crore.
Before the scandal Satyam was the 4th
ranked among IT companies of India and
on 9th jan2009 it became least valuable IT
company in India.
IMPACT OF SATYAM SCAM ON INDIAN ECONOMY

Although several companies are trying to

have a bite into Satyam Computers,
according to Gartner study, the company
is likely to exist in its current form. It is
expected to discontinue some of its
businesses, service lines or cease to exist
in certain geographies.
Huge losses to investors aside, the
Satyam scandal has caused serious
damage to India Incs reputation as well
as the countrys regulatory authorities
 The Government certainly cannot remain
aloof and allow Satyam to die off
especially when it provides occupation to
53,000 odd people and indirectly
supports more than a million Indians.
The Satyam scam effect has started its
infectious presence. U.S. listedstocks of
other Indian companies have started
taken a severe beating.
Indian firms are looking into methods to
avoid scenarios of such scams within
their companies.
 Who is Auditor?
An Auditor, first and foremost has to be a Chartered
Accountant under the Chartered Accountants Act, 1949.
He is the person appointed to examine the books of account
and the accounts of a company registered under the
Companies Act, and to report upon them to the companys
shareholders.
Audit means the examination or assessment of a companys
annual accounts, i.e. a balance sheet, profit and loss account
and other financial statements as required by law.
Under the Companies Act, an auditor is required to express
an opinion as to whether the annual accounts give a true and
fair view of the companys state of affairs and financial
position. To formulate such an opinion, the auditor needs to
examine the companys internal accounting system, inspect
its assets, test-check of accounting transactions.
Role of auditors, in light of Satyam scam

This fraud was not committed overnight;

it was building up continuously from over
years. The role of Satyams auditors is
under scanner. They ignored some of the
obvious indications of embezzlement and
thus failed to catch on the massive scam,
which could have been caught much
before it acquired the massive status.
 Decrease in holdings

1. The holdings of Raju and his family decreased

from 15.67% in 2005-06 to 8.61% in September
2008 and finally, early this year to a meagre
2.3% without anybody noticing. Further, in 2006,
he transferred these shares to his familys
company, SRSR Holdings Pvt. Ltd. from which he
took out loan using his shares as collateral.
2. Further, an enormous amount of Rs.4462 crore
was lying unused in its current account. This
amount was neither distributed among
shareholders in the shape of dividend, nor was it
used to earn valuable interest, as it is usually
done. But neither independent board members,
nor the auditors seemed to question this.
3. Ten Imaginary fixed deposits Raju
admitted that Satyams fixed deposits
which supposedly grew from Rs. 3.35
crore in 1998-99 to a massive Rs.
3320.19 crore in 2007-08 are all fake.

The auditors are supposed to have

an independent bank confirmation of
such things in the form of a bank
statement and should have obtained
certificates from the banks on the
tax deducted on the interest
accruing on the fixed deposits.
 Undisclosed pledges

Satyam also procured a loan of about Rs.

1230 crore without appropriate
disclosure. It wasnt as if no one was ever
suspicious of Satyams dodgy numbers. It
was accused of tax fraud and insider
trading back in 2003. However, the
company police- including the auditors
seemed to ignore the accusations.
HOW THESE SCAMS CAN BE
CONTROLLED
In addition to the present statutory requirement,
companies should be required to institute sufficient
internal management controls.
Management should ensure that the internal audit staffs
are able to prevent and detect financial statement fraud.
Companies whose shares are publicly traded should be
required to have audit committees to monitor the
internal control system and provide important links to
the internal audit staff.
Sanctions against the perpetrators of financial statement
fraud should be increased by imposing fines and other
deterrent measures like barring from corporate office.
However, in this case, there is a need to prevent
innocent managers from being too risk averse.
 There is a need to clarify the duties of
external auditors.
The management should formulate
appropriate policies and procedures
which would reduce such risks.
The audit report should include a letter
from the Chairman of the audit
committee discussing the committee's
responsibilities and activities during the
year.
 Suggestions towards Auditors
Evaluate the potential for fraud in a given audit
engagement.
Be obliged to utilise tests that provide reasonable
assurance of detection of fraud
Evaluate the strength of the overall control
environment
Facilitate the identification of areas of high audit risk
by reviewing the procedure analytically
Communicate their role and responsibilities to all
those who rely on their work (ie nature and limitation
of audit)
Report directly to the public any material irregularities
and illegal acts discovered during an audit.