A special CBI court sentenced B Ramalinga Raju, his two brothers and seven others to seven years in prison in the Satyam fraud case.

The court also imposed a fine of Rs 5 crore on Ramalinga Raju, the Satyam Computer Services Ltd’s founder and former chairman, and his brother B Rama Raju and Rs 20-25 lakh each on the remaining accused.

What is the Satyam scam about ?

It is about corporate governance and fraudulent auditing practices allegedly in connivance with auditors and chartered accountants. The company misrepresented its accounts both to its board, stock exchanges, regulators, investors and all other stakeholders.

Is this an accounting fraud, a market manipulation/fraud or both ?

It is a fraud, which misled the market and other stakeholders by lying about the company’s financial health. Even basic facts such as revenues, operating profits, interest liabilities and cash balances were grossly inflated to show the company in good health.

Who is to blame here ? The promoters ?

The promoters are primary culprits, although it is almost impossible to misrepresent such facts without the connivance of the auditors and some executive board members. Independent directors, it seems, were kept in the dark about the actual books of accounts.

What about the auditors ?

The role of external third party auditors, who were tasked to ensure that no financial bungling is undertaken to carry out promoters’ interest or hide facts, have also been brought to question.

Anatomy of a fraud :

1. Maintaining records
Raju maintained thorough details of the Satyam’s accounts and minutes of meetings since 2002.

Raju stored records of accounts for the latest year (2008-09) in a computer server called “My Home Hub.”

2. Fake invoices and bills
Details of accounts from 2002 till January 7, 2009 – the day Raju came out with his dramatic, five-page confession – were stored in two separate Internet Protocol (IP) addresses.

Fake invoices and bills were created using software applications such as ‘Ontime’ that was used for calculating hours put in by an employee

A secret programme was allegedly planted in the source code of the official invoice management system creating a user id ‘Super User’ with the power to hide or show the invoices in the system.

3. Web of companies
A web of 356 investment companies was used to allegedly divert funds from Satyam.

These companies had several transactions in the form of inter-corporate investments, advances and loans within and among them.

One such company, with a paid up capital of Rs 5 lakh, had made an investment of Rs 90.25 crore and received unsecured loans of Rs 600 crore.

4. Why did he need the money
The cash so raised was used to purchase several thousands of acres of land across Andhra Pradesh to ride a booming realty market.

It presented a growing problem as facts had to be doctored to keep showing healthy profits for Satyam that was growing in size and scale.

Every attempt made to eliminate the gap failed.

As Raju put it, “it was like riding a tiger, not knowing how to get off without being eaten.”

Cashing out by selling Maytas Infrastructure and Maytas Properties to Satyam for an estimated Rs 7,800 crore was the last straw. The attempt failed and Raju made the stunning confessions three weeks later.


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