3. • 16 DECEMBER 2008: THE BOARD APPROVED A 51% STAKE ACQUISITION
OF MAYTAS INFRA AND 100% STAKE IN MAYTAS PROPERTIES. BOTH
FIRMS WERE IN CONSTRUCTION & REAL ESTATE BUSINESS.
• THE DEAL REQUIRED BORROWING OF US$300 MILLION IN ADDITION TO
US$ 1.2 BILLION OF CASH THAT SATYAM CLAIMED TO POSSESS.
• THERE WAS STIFF RESISTANCE FROM THE INVESTORS.
• EVEN THOUGH SATYAM CALLED OFF THIS DEAL, IT RAISED QUESTIONS ABOUT ITS
…….......................CORPORATE GOVERNANCE PRACTICES.
• 23 DECEMBER 2008: WORLD BANK SUSPENDED SATYAM FOR 8 YEARS
FROM DOING ANY BUSINESS WITH ITSELF.
4. • ON DECEMBER 26- MANGALAM SRINIVASAN, AN INDEPENDENT DIRECTOR RESIGNED.
• IL&FS SOLD 4.41 MILLION SHARES OF SATYAM IN OPEN MARKET AND HENCE RAJU’S AND
HIS FAMILY’S STAKE DILUTED TO 5.13%.
• ACCORDING TO ‘INVESTORS PROTECTION AND REDRESSAL’ FORUM, “INVESTMENT BANK
DSP MERRILL LYNCH, WHICH WAS APPOINTED BY SATYAM TO LOOK FOR A PARTNER OR
BUYER FOR THE COMPANY, ULTIMATELY BLEW THE WHISTLE AND TERMINATED ITS
ENGAGEMENT WITH THE COMPANY SOON AFTER IT FOUND FINANCIAL IRREGULARITIES”
• A FORMER SENIOR EXECUTIVE IN SATYAM WROTE AN ANONYMOUS EMAIL ABOUT THE
FINANCIAL IRREGULARITIES & FRAUD TO ONE OF THE BOARD MEMBERS.
• ON JANUARY 7,2009 B. RAMALINGA RAJU WROTE A RESIGNATION LETTER TO THE SEBI
WHERE HE ADMITTED THAT HE FALSIFIED THE FINANCIAL STATEMENTS.
6. REASONS FOR THE FRAUD
1. WEAK CORPORATE GOVERNANCE:
– THE MECHANISM FOR MONITORING THE ACTIONS, POLICIES AND DECISIONS MADE IN SATYAM WAS PROVED TO BE WEAK.
2. DUBIOUS ROLE OF INDEPENDENT DIRECTORS:
– IT IS HARD TO BELIEVE THE INDEPENDENT DIRECTORS COULD NOT DISCOVER THE WELL-PLANNED MASSIVE FRAUD AND
MANIPULATIONS.
– THEY SHOULD HAVE QUESTIONED HOW AND WHY THE COMPANY WAS SITTING ON SUCH A HUGE PILE OF CASH.
3. FAILURE AT ALL 3 LEVELS OF AUDITING:
FINANCIAL IRREGULARITIES WERE IGNORED BY THE INTERNAL & EXTERNAL AUDITORS.
– INTERNAL AUDIT HEADED BY THE CFO
– EXTERNAL AUDIT BY PWC
– BOARD’S AUDIT COMMITTEE HEADED BY INDEPENDENT DIRECTORS
7. 4. GREED
5. AMBITIOUS CORPORATE GROWTH
6. STOCK MARKET EXPECTATIONS
7. WHISTLE BLOWER POLICY NOT BEING EFFECTIVE
