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    Satyam Chief Admits Huge Fraud


    A leading Indian outsourcing company that serves more than a third of the Fortune 500 companies in the New Delhi.  This is significantly inflated its earnings and assets for years.  The chairman and co-founder roiling Indian stock markets and throwing the industry into turmoil.  After revealing that the Chairman Ramalinga Raju had systematically falsified accounts as the company expanded from a handful of employees into a back-office giant with the work force of 53,000 and operations in 66 countries.  The 50.4 billion rupees or the $1.04 billion of the 53.6 billion rupees in cash and the bank loans that the company listed as assets for its second quarter which is ended in September were nonexistent.

    For the quarter the revenue was 20 percent lower than the 27 billion rupees reported and the company’s operating margin was a friction of what it declared.  In  a letter to directors that was distributed by the Bombay Stock Exchange.  The Satyam serves as the back office for some of the largest banks, manufacturers, health care and media companies in the world, handling everything from computer systems to customer service.  The clients have included the General Electric, General Motors, Nestle and the United States government.  Some of the cases, Satyam is even responsible for the clients finances and accounting.   The revelations could cause a major shake-up in India’s enormous outsourcing industry, it may force many large companies to investigate and perhaps revamp their back office.

    Analysts with Religare Hichens Harrison, this development is going to have a major impact on Satyam’s business with its clients.  In the short term they will see lot of Satyam’s clients migrating to competition like Infosys.  TCS and Wipro.  Satyam is the fourth largest outsourcing firm after the three named. In the four and a half page letter distributed by the Bombay stock exchange, it described that the small discrepancy that grew beyond its control.  Mr. Raju said that he tried and failed to bridge the gap.  It includes an effort in December to buy two construction firms in which the company’s founders held stakes.  In speaking of a deep regret and a tremendous burden, Raju siad that neither he nor the co-founder and managing director, B. Rama Raju had taken one of the rupee or dollar from the company.  The board had knowledge of the situation nor dis his or the managing directors families.

    In addition to India, the size and scope of the fraud raises questions about regulatory oversight in India and beyond.  Satyam has been listed on the New York Stock Exchange since 2001 and on the Euronext since January of 2008.  The company has been audited by the PricewaterhouseCoopers since its listing on the New York Stock exchange.  After an October report that the company had been banned from the World Bank contracts for installing spy software on some World Bank computer, Satyam has been  under close scrutiny in recent months. The company had been banned from the World Bank contracts for installing the spy software on some World Bank computers.  The Satyam denied the accusation but in December the world confirmed without elaboration on the cause that Satyam had been banned.  In December,  Satyam’s investors revolted that after the company proposed buying two firms with the ties.

    The analyst with Forrester Research warned that the corporations that rely on Satyam might ultimately need to stop doing business with the company.  The firms should take the initial steps of reviewing the exit clauses in their current Satyam contracts in case of the management or direction of the company changed.  The risk premium for the Indian strategist at credit suisse, the scandal raised questions over the accounting standards in India as a whole as observes asked whether similar problems might lie buried elase where.




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