Andhra's CM on Raju

Andhra Pradesh Chief Minister Y S Rajasekhara Reddy on Wednesday said he was not aware of the details of the Satyam Computer financial fraud, and would take appropriate action after studying the case.

Reddy was here for a meeting with Planning Commission Deputy Chairman Montek Singh Ahluwalia.

Raju, founder-chairman of India's fourth largest IT firm Satyam, headquartered in Hyderabad, today revealed that balance sheet of Satyam had been inflated and that he would subject himself to the laws of the land.

"Let me see," was all Reddy had to say when asked what action his government take.

On the Hyderabad metro project that is awarded to Maytas, promoted by Raju's son, he said it was not with Satyam.

INDIAN police have arrested Satyam Computer Services founder B. Ramalinga Raju and his brother while the Government removed the company's directors and regulators took possession of its books, following revelations accounts were falsified over several years.

Action n Reactions:Against Raju

Jan. 7: B. Ramalinga Raju, the embattled Satyam chairman who resigned today, could face up to 10 years in prison, a penalty of Rs 25 crore or both if market watchdog Sebi proceeds against him for fudging company accounts.

Some lawyers, however, said the sentence wouldn’t exceed three years.

But that isn’t all.

His misdeeds could also attract provisions of the Indian Penal Code under which he can be charged with cheating and falsification of accounts, offences that can attract a maximum punishment of seven years in jail.

Then there is Section 628 of the Companies Act under which he could be jailed for at least two years apart from monetary penalty, or both.

Observers said the Satyam promoter could also be hounded in America as the company is listed on the New York Stock Exchange. “One cannot rule out the possibility of class action suits,” said an observer who didn’t want to be named.

But Raju, lawyers said, can’t be arrested without following the due process of law. Corporate lawyer Dhruv Mehta said a complaint would have to be filed for investigations to begin. As Raju has publicly said he did fudge the accounts, it could, in this case, be the state government that could ask police to investigate.

Once the investigation is over, the police would have to file a chargesheet in court.

Andhra chief minister Y.S. Rajasekhar Reddy said in Delhi a CB-CID inquiry would be ordered into the “mind-boggling” fraud immediately.

But, later in the day, Hyderabad police commissioner B. Prasada Rao said no complaint had been received yet from Sebi or the Registrar of Companies. “We have not received any complaint from anybody and the question of his arrest does not arise,” Rao told PTI.

However, Raju’s troubles already seem to have begun.

Hours after he admitted to the fraud, Kirit Somaiya, president of the Investors’ Grievances Forum, filed a criminal complaint against Raju and the auditors —PricewaterhouseCoopers — with the Economic Offences Wing of Mumbai police.

Somaiya told The Telegraph the complaint was filed under Section 420 for cheating, which carries a maximum punishment of three years in jail — the same as for criminal breach of trust.

Sandeep P. Parekh, a former executive director with Sebi and now a visiting teacher at IIM Ahmedabad, said Raju could be jailed for 10 years.

He said the Satyam Computers chairman had violated the listing agreement with stock exchanges under Section 23 (2) of the Securities Contract Regulation Act. “Criminal and penal action can be taken where he can face imprisonment for a maximum period of 10 years.”

Parekh said local bourses might choose not to proceed against Raju but authorities abroad could initiate action.

“There also could be shareholder actions, private class action lawsuits,” Parekh added.

Sebi said it had ordered a probe into “affairs relating to buying, selling or dealing in shares” of Satyam. “The investigation will also ascertain whether any provision of the Sebi Act or Sebi Regulations/ Rules has been violated,” the capital market regulator said in a statement this evening.

It didn’t say if it was looking at whether provisions of the Securities Contract Regulation Act had been violated.

Informed circles said a Sebi team would visit Hyderabad tomorrow to inspect books of the company. The team is also likely to look at the role played by the company’s audit committee.

Lawyers said even the company’s directors and executives — anybody who had a managerial role — could face charges for inflating profits and deflating liabilities.

Senior Supreme Court lawyer C.A. Sundaram, who specialises in corporate law, said if the admissions made by Raju were “true”, it was a “very serious matter”.

“It’s a public company… a listed company… it is a huge company, it is a well-known company and has thousands of public investors,” he said.

“Directors have a fiduciary duty towards the company and its shareholders,” Sundaram added. “When a listed company does this, it is exceedingly serious and amounts to cheating thousands of investors.”

The Satyam episode, he said, had also exposed the complete failure of regulatory mechanism in India. “Sebi has enormous powers,” he said. “What was it doing?”

source:telegraph

Raju,s Letter

he chairman of India's Satyam Computer Services (SATY.BO) (SAY.N) resigned on Wednesday, saying profits had been inflated over the last several years.

Following is the text of his letter, which was released by the Bombay Stock Exchange.

To the Board of Directors

Satyam Computer Services Ltd.

From B. Ramalinga Raju

Chairman, Satyam Computer Services Ltd. January 7, 2009

Dear Board Members,

It is with deep regret, and tremendous burden that I am carrying on my conscience, that I would like to bring the following facts to your notice:

1. The Balance Sheet carries as of September 30, 2008

a. Inflated (non-existent) cash and bank balances of 50.40 billion rupees ($1.04 billion) (as against 53.61 billion reflected in the books).

b. An accrued interest of 3.76 billion rupees which is non-existent.

c. An understated liability of 12.30 billion rupees on account of funds arranged by me.

d. An overstated debtors position of 4.90 billion rupees (as against 26.51 billion reflected in the books)

2. For the September quarter (Q2) we reported a revenue of 27.00 billion rupees and an operating margin of 6.49 billion rupees (24 pct of revenues) as against the actual revenues of 21.12 billion rupees and an actual operating margin of 610 million rupees (3 percent of revenues). This has resulted in artificial cash and bank balances going up by 5.88 billion rupees in Q2 alone.

The gap in the Balance Sheet has arisen purely on account of inflated profits over a period of last several years (limited only to Satyam standalone, books of subsidiaries reflecting true performance). What started as a marginal gap between actual operating profit and the one reflected in the books of accounts continued to grow over the years. It has attained unmanageable proportions as the size of company operations grew significantly (annualized revenue run rate of 112.76 billion rupees in the September quarter, 2008, and official reserves of 83.92 billion rupees). The differential in the real profits and the one reflected in the books was further accentuated by the fact that the company had to carry additional resources and assets to justify higher level of operations -- thereby significantly increasing the costs.

Every attempt made to eliminate the gap failed. As the promoters held a small percentage of equity, the concern was that poor performance would result in a take-over, thereby exposing the gap. It was like riding a tiger, not knowing how to get off without being eaten.

The aborted Maytas acquisition deal was the last attempt to fill the fictitious assets with real ones. Maytas' investors were convinced that this is a good divestment opportunity and a strategic fit. Once Satyam's problem was solved, it was hoped that Maytas' payments can be delayed. But that was not to be. What followed in the last several days is common knowledge. I would like the Board to know:

1. That neither myself, nor the Managing Director (including our spouses) sold any shares in the last eight years -- excepting for a small proportion declared and sold for philanthropic purposes.

2. That in the last two years a net amount of 12.30 billion rupees was arranged to Satyam (not reflected in the books of Satyam) to keep the operations going by resorting to pledging all the promoter shares and raising funds from known sources by giving all kinds of assurances (Statement enclosed, only to the members of the board). Significant dividend payments, acquisitions, capital expenditure to provide for growth did not help matters. Every attempt was made to keep the wheel moving and to ensure prompt payment of salaries to the associates. The last straw was the selling of most of the pledged share by the lenders on account of margin triggers.

3. That neither me, nor the Managing Director took even one rupee/dollar from the company and have not benefitted in financial terms on account of the inflated results.

4. None of the board members, past or present, had any knowledge of the situation in which the company is placed. Even business leaders and senior executives in the company, such as, Ram Mynampati, Subu D, T.R. Anand, Keshab Panda, Virender Agarwal, A.S. Murthy, Hari T, S.V. Krishnan, Vijay Prasad, Manish Mehta, Murali V, Sriram Papani, Kiran Kavale, Joe Lagiola, Ravindra Penumetsa; Jayaraman and Prabhakar Gupta are unaware of the real situation as against the books of accounts. None of my or Managing Director's immediate or extended family members has any idea about these issues.

Having put these facts before you, I leave it to the wisdom of the board to take the matters forward. However, I am also taking the liberty to recommend the following steps:

1. A Task Force has been formed in the last few days to address the situation arising out of the failed Maytas acquisition attempt. This consists of some of the most accomplished leaders of Satyam:, Subu D, T.R. Anand, Keshab Panda and Virender Agarwal, representing business functions, and A.S. Murthy, Hari T and Murali V representing support functions. I suggest that Ram Mynampati be made the Chairman of this Task Force to immediately address some of the operational matters on hand. Ram can also act as an interim CEO reporting to the board.

2. Merrill Lynch can be entrusted with the task of quickly exploring some Merger opportunities.

3. You may have a restatement of accounts' prepared by the auditors in light of the facts that I have placed before you.

I have promoted and have been associated with Satyam for well over twenty years now. I have seen it grow from few people to 53,000 people, with 185 Fortune 500 companies as customers and operations in 66 countries. Satyam has established an excellent leadership and competency base at all levels. I sincerely apologize to all Satyamites and stakeholders, who have made Satyam a special organization, for the current situation. I am confident they will stand by the company in this hour of crisis.

In light of the above, I fervently appeal to the board to hold together to take some important steps. Mr. T.R. Prasad is well placed to mobilize support from the government at this crucial time. With the hope that members of the Task Force and the financial advisor, Merrill Lynch (now Bank of America) will stand by the company at this crucial hour, I am marking copies of this statement to them as well.

Under the circumstances, I am tendering my resignation as the chairman of Satyam and shall continue in this position only till such time the current board is expanded. My continuance is just to ensure enhancement of the board over the next several days or as early as possible.

l am now prepared to subject myself to the laws of the land and face consequences thereof.

(B. Ramalinga Raju)

Copies marked to:

1. Chairman SEBI

2. Stock Exchanges ($1=48.6 rupees)