Wednesday, April 29, 2009

A web of deceit


Firm's managers duped customers as they lined their pockets, says report

NEW DELHI — Managers at India's Satyam Computer Services spun an elaborate web of fraud to attract customers and investors, while using stakes in the company to raise cash for themselves, according to a report by India's top investigation agency.

The deception played out over at least eight years, involved dual accounting books, more than 7,000 forged invoices, dozens of fake bank statements, thousands of unnecessary employees and auditors who received fees several times the market rate, according to a charge sheet filed by the Criminal Bureau of Investigation.

The 77-page document provides details of the scope of the fraud at Satyam, and lays out the bureau's case for charging six company managers, their PricewaterhouseCoopers auditors and an adviser with cheating, forgery and falsification of accounts.

Satyam managers, including the founding brothers B Ramalinga and B Rama Raju, "were able to attract prospective customers and investors by making them believe" that the company was "carrying out huge volumes of business", the report said.

The details of the bureau's investigation could bolster a string of class-action suits pending against Satyam managers and auditors.

Tech Mahindra, a joint venture between the Indian conglomerate Mahindra & Mahindra and BT Group, won an auction to take over Satyam on April 13 with a bid valuing the company at US$1.1 billion ($1.66 billion). The deal may still need to clear regulatory hurdles in the United States and Europe.

The Raju family and their friends, which held 19 per cent of Satyam when it went public in 1992, "made hay when the sun was shining" by selling shares as they carried out the fraud, the bureau said.

More than 300 investment companies were started, some of which used loans backed by shares to invest in real estate and agriculture.

Banks issuing the loans included Deutsche Investments India, GE Capital Services and DSP Merrill Lynch.

Like many companies, Satyam had a multi-step process for taking customer orders, calculating what the work would cost and generating invoices.

Managers in different departments checked and crosschecked the figures as they passed through the system.

But employees in the accounts receivable team could also practise "emergency generating of invoices" which bypassed most of the steps, the report said.

From the beginning of April 2003 to the end of 2008, nearly 75,000 of these special invoices were created.

Of these, 7,561 were fraudulent, generated to make Satyam look as if it had more business than it did.

From 2004 until the fraud came to light when Ramalinga confessed in January this year, sales were inflated 18 per cent a quarter on average, for a total of about 42.6 billion rupees ($1.3 billion).

The Raju brothers are accused of forging receipts for bank deposits and destroying the forgeries.


From TODAY, Business – Thursday, 23-April-2009


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