B Ramalinga Raju “Gets Off The Tiger” And Joins The Fraud Party

Another day, another billion-dollar fraud. This time round it’s B. Ramalinga Raju, CEO of Indian outsourcing company Satyam Computer Services; he’s been fiddling the books for “several” years, leading to a $1bn-worth hole of emptiness where money should be. Just like Madoff, he broke the news by fessing up, though he did it not in a blubbering heap to his family but in a letter to the board. “It was like riding a tiger, not knowing how to get off without being eaten”, he writes. Fraud sounds awfully exciting, doesn’t it?

Elsewhere he lays out exactly how and to what extent he messed up, eschewing euphemism for bald facts: “Inflated (non-existent) cash and bank balances…An accrued interest of Rs 376 crore which is non-existent…understated liability…An overstated debtors position…artificial cash and bank balances”. And what’s that company logo font about? It’s one step away from Comic Sans!

“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”, he says – it grew and grew until they had one last chance to fill the gap with actual assets, a takeover of construction group Maytas. Once the deal fell though in mid-December, everything began to unravel, with the World Bank refusing to deal with Satyam, directors quitting left and right, and shares falling daily. Raju eventually “got off the tiger”, which I really hope becomes as much a by-word for admitting fraud as “jump the shark” is for general ridiculousness.

After the announcement, the company’s shares have dived 80%, sending India’s stock market down 8%, causing Satyam to be expelled from the National Stock Exchange and replaced with the more reliable-sounding Reliance Capital. Now the lawsuits are flooding in from people who bought shares in the company at artificially inflated prices. Questions are also being asked of various people who managed to miss this black hole on the books – the rest of the company’s board; the company’s auditor, PriceWaterhouseCoopers; and the Indian regulatory bodies, the Registrar of Companies and the Securities and Exchange Board. While America’s SEC is holding its hands up over the Madoff case, India’s is pointing at PwC and saying “no, no, it’s their fault” before stamping its foot and having a little cry: “The most important question is what went wrong with the audit. Is there a systemic problem in getting correct information from the management and then audit?”, asked M Damodaran, former chairman of the Securities and Exchange Board of India. 

PwC have already got someone on their backs over the case, the Institute for Chartered Accountants of India, the regulator of auditors in the country. “ICAI has already initiated proceedings against the concerned auditor”, said their chief, Ved Jain. And we can expect the angry eyes of the aforementioned wronged investors to turn on PwC very shortly.

Now Satyam employees are resigning or at least looking for new jobs by the thousand, as big name clients like Tesco are starting to look uncertain. “Trust is a critical factor in all our outsourcing decisions, and all I can say is that there is tremendous competition among companies such as Infosys, Wipro, TCS and Satyam”, said Mike McNamara, Tesco’s operations director, in a moment of irritating passive aggression. 

So yet another guy gets reckless and his actions impact upon the lives of thousands of ordinary people. Yesterday’s softness has worn off, and now I just want these guys put in the stocks and their wronged employees handed antiquated medical equipment while the police look the other way.

Posted by Ben Beaumont-Thomas in Hot Money | January 8, 2009 11:50AM |