It is the most sensational mea culpa ever. Satyam Computer Services chairman B Ramalinga Raju admitted to committing a gigantic Rs 7,136 crore fraud.
It is the most sensational mea culpa ever. On Wednesday, Satyam Computer Services chairman B Ramalinga Raju admitted to committing a gigantic Rs 7,136 crore fraud that shook corporate India and the stock markets to the core.
In a letter to the board, Raju, 54, unburdened his “conscience” and admitted that there was a huge hole in the company’s balance-sheet created by reporting “inflated profits over a period of the last several years.” He tried to fill this “gap” by announcing the merger of Satyam, India’s fourth largest software firm, with two family-owned companies, but an investor revolt aborted the move. Here’s the dope on how
he pulled off India’s greatest corporate fraud.
What
Raju's letter reveals four major heads under which the fraud was committed. One, the largest chunk of Rs 5,040 crore, is missing from cash and bank balances. Another Rs 376 crore reflects non-existent interest income. Then, there is an understated liability of Rs 1,230 crore on account of funds arranged by Raju. Last, there is an overstated position of dues owed to the company amounting to Rs 490 crore. Total: Rs 7,136 crore.
How
Raju's confession says that the company had lower income and profits that what was reported. In the second quarter of this year, the operating profit was actually Rs 61 crore but Raju got it reported as Rs 649 crore. Net of tax, he was actually making losses, Satyam had also inflated the revenue numbers from Rs 2,112 crore to Rs 2,700 crore. Obviously, this kind of inflation was done to impress the markets and fool investors.
Why
Some say the gap between the real balance-sheet and the fictitious one emerged in 1999-00, when Raju was an aggressive investor in dotcoms. Another version says his family's huge thrust in real estate and infrastructure also needed funding. To plug the gap, Raju sought a merger with Maytas. The solution collapsed when investors balked at the idea of shifting cash from Satyam to Raju family members. What they did not know was that the cash did not exist.
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