Last Wednesday, Satyam, the fourth-largest Indian IT outsourcing service provider, announced that their profits have been inflated for years. The firm’s founder and CEO, Ramalinga Raju, made the shocking announcement and added that no other board member was aware of the financial situation, which is being compared to the Enron fiasco.
Here is a brief run-down of the situation:
- Raju claims that about $1 billion or 94% of the cash on the company’s books was fictitious.
- Shares dropped approximately 80% until the NYSE stopped trading on Satyam “indefinitely.”
- In 2007, the World Bank barred Satyam from contracts for 4 years for providing “improper benefits to bank staff.”
- By Friday, Raju and his brother, co-founder and managing director, were arrested
- The Indian government disbanded the Satyam board and were set to appoint 10 new members who would meet this week (three were appointed by Sunday).
- Satyam’s CFO, Srinivas Vadlamani, who was on vacation during the announcement, had sold 92,358 shares in September to “build a house”
- The CFO had apparently taken “the books” (who has paper books?) with him to his house while on vacation, and had reportedly tried to commit suicide last week. He is now also in custody.
- It is rumored that Satyam auditors, Price WaterHouse Cooper, may be banned from doing business in India. It’s still unclear how PWC missed this large of a discrepancy. However, two members of the Central Council of the Institute of Chartered Accountants of India (ICIA), the regulatory body of the accounting profession, are senior partners of PWC.
- A dozen lawsuits have been filed in the US against Satyam.
- As of today, the new board announced one of their tactics to save the company would be to ask clients for advance payments for services.
- Local Indian banks have lowered or revoked personal lines of credit for Satyam employees since there is speculation on whether the company can make payroll past January.
- New audit firm to be appointed in 48 hours
- India’s government announces that they are ready to bail out Satyam, if required.
- CFO claims that bank deposits were handled directly by the Chairman and Managing Director (Raju brothers)
- Some discussion about PWC managing the audit based on documents they were given, however they never had actual bank statements to back it up. (unconfirmed)
- Wipro Technologies, another India-based IT firm, has now also been banned from doing business with the World Bank (like Satyam)
- Indian police search the offices of Satyam auditors, PriceWaterHouse Cooper.
- Satyam interim CEO, Ram Mynampati, is rumored to be in custody of the Indian police, however Satyam released statements saying he is touring the US visiting clients. The CID told CNN that Mynampati is very much in Hyderabad, India and was seen in his office yesterday.
- Central Government of India plans a “salary bailout” for the approximately 53,000 employees of Satyam.
The worst part is that the employees will shoulder much of the Satyam fraud. With salaries in jeopardy and banks revoking credit, there is concern whether employees will continue to show up to work. However, like with many parts of the world right now, jobs are difficult to find in India.