Satyam Scandal (India's Enron)

On Jan 7, 2009, B. Ramalinga Raju, chairman of Satyam Computers, sent a shocking email to the stock exchanges: "It was like riding a tiger, not knowing how to get off without being eaten."

It remains the biggest corporate governance failure in Indian history, exposing the gaps in the auditing and board oversight mechanisms.

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Timeline of the Crisis

• Dec 16, 2008: The Maytas Blunder - Satyam announces it will buy Maytas Infra & Properties (owned by Raju's sons) for $1.6 Billion. Markets crash (Satyam down 55% in days).
• Dec 17, 2008: Deal Cancelled - Due to massive shareholder outrage, Raju cancels the deal. But the damage is done. Investors are suspicious.
• Christmas 2008: Merrill Lynch Whispers - Raju hires DSP Merrill Lynch to find a buyer for Satyam. Upon due diligence, ML finds financial discrepancies.
• Jan 7, 2009: The Confession - Raju admits to Rs. 7,136 Crore fraud in a resignation letter. Satyam stock crashes from Rs 179 to Rs 6.
• Jan 9, 2009: Govt Intervention - Govt of India dismisses the board and appoints 3 new directors (Deepak Parekh, Kiran Karnik, C Achuthan) to save the company.

Anatomy of the Fraud (Rs. 7,136 Crore)

Raju's letter detailed the exact gap:

1. Inflated Cash & Bank Balances: Rs. 5,040 Cr (Actual was Rs. 321 Cr).
2. Accrued Interest (Non-existent): Rs. 376 Cr.
3. Understated Liability: Rs. 1,230 Cr.
4. Overstated Debtors: Rs. 490 Cr.

Basically, the company was showing huge profits, but the bank accounts were empty.

Why did he do it?

Raju started by manipulating the accounts slightly to meet quarterly analyst targets.

"What started as a marginal gap between actual operating profit and the one shown in the books continued to grow over the years. It has attained unmanageable proportions..." - Ramalinga Raju.

He tried to buy Maytas (Real Estate assets) using the "Fake Cash" on Satyam's books. If the deal had gone through, the "Fake Cash" would have been replaced by "Real Land" assets, and the fraud would be hidden forever. When shareholders rejected the deal, he was trapped.

Governance Failure

• Independent Directors: The board included eminent figures (Dean of ISB, etc.). They failed to ask basic questions: "Where is the Bank Statement?"
• Auditors: PwC audited Satyam. They certified the 5,000 Cr cash without verifying with the banks properly (Bank Consfirmation letters were forged).
• Promoter Pledging: Raju had pledged almost all his shares to borrow money for real estate. When stock prices fell, margin calls triggered the crisis.

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