On January 7th, Ramalingam Raju, the chairman of Satyam Computer Services, sent a letter to his board and the SEC of India stating that he had been guilty of inflating Satyam’s cash balance by $1 billion, not reporting an additional $253 million in liabilities, and inflating the company’s most recent quarterly sales by 76% and profits by 97%. In the letter he states “I am now prepared to subject myself to the laws of the land and face the consequences thereof.” Shares dropped 78% on the news adding to recent declines that had been caused by a shady acquisition plan and a scandal at the World Bank.
In mid-December, the company’s shares fell 55% after an announcement that the company would purchase assets from the chairman’s family for $1.6 billion. Following an investor protest those plans were scrapped. In September, the World Bank imposed an eight year ban on the company after it found that Satyam’s employees had hacked into their systems and gained access to sensitive information. Three directors resigned in late December as a result of the company’s scandals.
PricewaterhouseCoopers was listed as the company’s auditor and had endorsed Satyam’s accounts. Apparently they didn’t audit the firm and just took the payment. As an accountant you are taught to balance everything to the penny; these guys fell short by $1 billion, maybe it was rounding? PwC has said that it is now performing an investigation into what went wrong. Ironically, the company had recently been awarded the Golden Peacock Global Award for Excellence in Corporate Governance.
Aberdeen Asset Management manages $45 billion in Singapore and owns a 6.6% stake in Satyam. In late December, Adrain Lin of Aberdeen Assets Management stated to Bloomberg “quite a few things have made the investment community very skeptical about the intentions of the senior management.” Gee, ya think? If you find one roach most likely there are many more that you don’t know about.
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