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8/6/2019 DEVAL'S PPT

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THE SATYAM SCAM


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INTRODUCTION


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Company Profile

Set up in the year 1987 byB.Ramalinga Raju.

Indias 4th biggest software

company.

On 26th August, 1991 itwas converted into aPublic Limited Company

and went for PUBLICISSUE in 1992.

BSE IPO oversubscribed17 times when madepublic.


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It is listed in BSE, NSE,NYSE and Euronext

(Amsterdam).The company employs53,000 IT professionalsacross developmentcenters in 6 continents.

It serves over 654global companies, 185of which are Fortune500 corporations.

Company Profile


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B. Ramalinga Raju

Founder & Chairman, Satyam

Computers Ltd.

B. Rama Raju

Promoter & CEO, Satyam Computers

Ltd.


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Background of the Fraud Case Maytas Infra Ltd., Company owned by Two sons of Raju were investing in the real

estate business and recently their real estate business was not in good shape.

Raju started using the manpower and other resources for the Satyam Company for

the welfare of his sons real estate business.

Four main shareholders of Satyam Company were horrified by the changing

behavior of Raju.

With Sat yam's management focused elsewhere, business suffered. Clients

complained about lack of attention, and many professional managers began to leave.

Before the shocking confession from Raju, there was a long list of reported suitors

for Satyam. They included HCL Technologies, Wipro, IBM (IBM), Hewlett-

Packard (HPQ), Larsen & Toubro InfoTech, Cognizant (CTSH), Cap Gemini

(CAPP.PA), and even private equity players KKR and TPG.


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Ramalinga Raju on Dec. 16 proposed that Satyam would buy a 31 percent stake

in Maytas Infra from his family, and an additional 20 percent from minority

shareholders, as well as all of Maytas Properties, for $1.6 billion.

y Satyam ADRs lost 50% of their value over night.

y Raju was forced to reverse his decision under the shareholders pressure.

y But what was widely seen as a move by Raju to bail out his sons was actually aimedat covering Sat yam's tracks through fictitious cash transfers.

y December also brought news of pending litigation by a former client, online mobile-payments service Upaid Systems ,which filed a case of intellectual fraud and forgery

against Satyam in 2007; a Texas court is scheduled to conduct a hearing on the caseJan. 7.

y What triggered the wrongdoing confession was investment banker DSP MerrillLynch's letter to the company (followed by another to Sebi this morning)terminating its 10-day-old agreement with Satyam to advise it on strategic options

because of ``material accounting irregularities. ( One day before confession)


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Impact of the Confession

Satyam had become "India's Enron," said CLSA India analyst Bhavtosh

Vajpayee, calling the case "an accounting fraud beyond imagination [and] an

embarrassing and shocking episode in Indian corporate governance."

Damaged India's reputation as a reliable provider of IT services.

Indian rivals will now come under greater scrutiny by regulators, investors, and

customers.

Tech Mahindra made a public statement that it would not be interested inacquiring Satyam "in the current environment.

Price waterhouse cooper, sat yam s official auditors are under scrutiny.

Raju familys holding in Satyam falls to 3.64%.


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Infosys, Tata Consultancy Services, Wipro, Accenture, and IBM could benefit

from $500 to $700 million in business from Satyam over the next six months if

the company flounders.

Satyam Computer crashed by Rs 139.15 or 77.69 per cent to close at Rs

39.95, after the Chairman announced the company had falsified accounts

and assets for several years.

Bse Fell 700 points because of this.

The Sensex, which had gained over 688 points in the last four sessions of

2009, tumbled below the crucial 10,000 point level, losing 749.05 points to

reach 9,586.88. It touched the day's low of 9,510.15 and a high of 10,469.72

points, showing a wide fluctuation of nearly 960 points.

The declining Sensex recorded the biggest single-day loss in the past two

months, after Satyam Computers Services, the country's fourth-largest

software developer, plunged around 80 per cent, the highest since getting

listed in 1992.


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The 50-share National Stock Exchange index Nifty tumbled by 192.40 points

at 2,920.40, after hitting the day's low of 2,888.20 points during the day.

The timing of what is being called India's Enron' could not havecome at a worse time - just when the stock market was showing

signs of responding positively to the Centre and RBI's moves to

stimulate the economy through interest rate cuts, duty reductions

and accelerated government spending. A day after the sensex

crossed the 10,000-mark, it plunged by 749 points, wiping outalmost Rs 1.3 lakh crore (or trillion) of market capitalization.


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Satyam Stock ChartOPEN

--

PREVIOUS CLOSE

38.85

DAY HIGH

--

DAY LOW

--

52 WEEK HIGH

05/30/08 - 544.00

52 WEEK LOW

01/9/09 - 11.50

MARKET CAP26.2B

AVERAGE VOLUME 3 mo42.5M

DILUTED EPS TTM

29.94

SHARES OUTSTANDING

673.9M

EX-DATE

10/29/08

P/E TTM

1.3x

DIVIDEND

7.00

DIVIDEND YIELD

18.02%

K = Thousands M = Millions B = Billions


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Accounting Scam


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Satyam faced is the biggest fraud in India'scorporate history.

The company management, mainly disgracedchairman B Ramalinga Raju, kept everyone in the

dark for a decade.


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The Scam

On 7 January 2009, companys previous Chairman Ramalinga

Raju resigned after notifying board members and the Securities

and Exchange Board of India (SEBI) that Satyam's accounts had

been falsified.

Raju confessed that Satyam's balance sheet of 30 September 2008

contained:

1. Inflated figures for cash and bank balances of Rs 5,040 crores as

against Rs 5,361 crore reflected in the books.

2. An accrued interest of Rs. 376 crore which was non-existent.

3. An understated liability of Rs. 1,230 crore on account of funds

was arranged by himself.

4. An overstated debtors' position of Rs. 490 crore (as against

Rs. 2,651 crore in the books.


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ACTUAL

DEBT WAS

2161.

OVERSTATED490 CRORES.

ACTUAL CASH

IN BANK WAS

321 CRORES,

INFLATED

5040 CR.

NO ACCRUED

INTEREST

376.34 CR.


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UNDERSTATED

LIABILITY

1230 Cr.

Which was

ARRANGED BY

MR.RAJU

5,040 + 376

+ 490 (Rs.

Cr)

Rs. 1,230

Cr

Rs.7,136

Cr


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Actions Taken

Chartered accountants body ICAI constituted a six-member special committee to

look into the auditing of crisis-hit Satyam Computer and will submit its auditing

report on February, 11.

The special committee will headed by ICAI Vice-President Uttam Prakash

Aggarwal .

ICAI council members

S L Dogra, Amarjeet Chopra;

Subodh Aggarwal ;

Akshay Gupta ;&K R Maheshwari, a banker and chartered accountant.


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Government asked the Serious Frauds Investigation Office (SFIO)-- a body set up to

crack complex white collar crimes-- to probe the financial irregularities in Satyam

Computer Services and report its findings in three months.

y This decision to refer Satyam to SFIO is based on the recommendation of theRegistrar of Companies (RoC) in Hyderabad, who inspected the books of Satyamwhich were being fudged for the past 7 years.

y Raju was arrested on charges of cheating, fraud and and other criminal chargesunder various sections of Indian Penal Code (IPC).

y The Securities and Exchange Board of India (SEBI) officials came to Hyderabad to

investigate the entire scam, but they could not do so as Raju was in the custody ofCID.

y The former chief executive officer (CEO) of Satyam Computers, Raju and hisyounger brother Rama Raju were remanded to judicial custody by sixth additionalMetropolitan magistrate for 14 days (ie till January 23) and both were shifted to

Chanchalguda Central Jail near the city.


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Satyam's New Board

Government of India announced a new board for Satyam. Three eminent persons

were selected to serve on Satyams board, the minimum number of directors

required under Indian law. The three are :-

Deepak Parekh, the chairman of the Housing Development Finance Corp;

Kiran Karnik, a former head of the National Association of Software and Services

Companies;&

C. Achuthan, a lawyer and former member of the Securities and Exchange Board

of India, the countrys market regulator.

T.N. MANOHARAN IS THE NEW CHAIRMAN ( Former President of ICAI).

Amarchand & Mangaldas, Suresh A Shroff and Co have been appointed legal

advisers to Satyam board. Where as Chartered accountants Brahmayya and Co of

Chennai have been named internal auditors with immediate effect.


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Recent Developments

It has been said that companies employees have been inflated in the books.

Actual Employees of Satyam are 40,000 which were shown as 53,000.

Raju, was signing off 20 crore rs of the company in the name of fictitious

employees.

L & T stake in Satyam have been increased to 12%.

Raju admits of diverting funds to Mayta s properties and Maytas Infra.

Two pricewaterhouse Coopers officials have been arrested in this fraud case.

Raju s jail custody has been extended till 31 st Jan.

Satyam 3rd chief financial officer has been arrested.


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Conclusion Conclusion The Satyam Scam can

be avoided : If auditor firm is honest.

If SEBI plays an active role. Review

legal compliance report periodicallyby independent directors.

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