Truth About Satyam Computer Services

Online Stock Trading - The Truth According to Satyam Computer Services

Another day another scandal. Satyam is the Sanskrit word for Truth. The Chairman of Satyam Computer Services, Ramalinga Raju, obviously got his definition of truth from that other organ of undiluted truth, the Russian newspaper Pravda ('Pravda' is the Russian word for truth). Moral of the story, be very wary of anyone associating themselves with the truth.

Personally, being something of an admirer of Sanskrit and India philosophy, I think it is a great pity that Mr Raju should seek to profit from the Sanskrit language by associating his fraudulent activity with Truth.

It turns out that Satyam Computer Services, an Indian outsourcing company serving over 33% of the Fortune 500 companies, has been inflating its earnings and assets for years. This admission has not gone down too well!

The chairman, Ramalinga Raju, has resigned after stating that he had systematically falsified accounts. Mr. Raju said that $1.04 billion (over 90%) of the cash and bank loans the company listed as assets for Q2 were nonexistent. Are there any connections between Mr Raju and Bernie Madoff we wonder? For the Bernie Madoff Ponzi Fraud see - Madoff With Your Money

Revenues for the quarter were 20% lower than reported, and the company’s operating margin was a fraction of what it declared.

Satyam acts as back office for some of the largest banks and other companies in the world, handling everything from computer systems to customer service. Clients have included General Electric, Nestlé, General Motors and the US government. Satyam is also responsible for some of its clients’ finances and accounting.

The revelations will have repercussions throughout India’s outsourcing industry.
Beneficiaries could be the three largest outsourcing firms - Infosys, TCS and Wipro. Satyam is the fourth-largest.

In his letter to the Bombay stock exchange, Mr. Raju said “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. It was like riding a tiger, not knowing how to get off without being eaten.” So that's alright then.

Mr. Raju expressed his “deep regret” and said that neither he nor B. Rama Raju co-founder and managing director had “taken one rupee/dollar from the company.” He said that neither the board nor his or the managing director's families had any knowledge of the situation.

Satyam has been listed on the New York Stock Exchange since 2001, and on Euronext since January 2008. The company has been audited by PricewaterhouseCoopers since its listing on the NYSE. Just what is it that auditors do exactly ?

Satyam has also been accused of installing spy software on some World Bank computers. Satyam denies the accusation but the World Bank has confirmed that Satyam had been banned.

On Dec. 30 Forrester Research said “Firms should take the initial steps of reviewing the exit clauses in their current Satyam contracts,” in case management or direction of the company changed.

The scandal has raised questions over accounting standards in India, but let's face it India hardly has the monopoly on crooks, incompetence and shady practices.

In October, Mr Raju surprised analysts with better than expected results, which he was pleased the company had achieved "in a challenging global macroeconomic environment, and amidst the volatile currency scenario that became reality.”

But by late December he had little support from the board and four directors have resigned in recent weeks.

The share price is down around 77% today.