In a scandal many industry watchers are comparing to the demise of the U.S. energy trading firm Enron, the chairman of India’s Satyam Computer Services, B. Ramalinga Raju, has resigned after publishing a five-page letter detailing years of fraudulent accounting designed to boost the company’s bottom line…and obscure a billion-dollar revenue gap. The company inflated its value by placing non-existent assets on its books and inflating its actual profits, although Raju says members of the company’s board were not aware of the deception, and he did not personally profit from it.
The revelations have hammered Satyam’s shares, which have lots more than 80 percent of their value since the disclosure. Six months ago, the company’s market value was over $7 billion.
Scandal had been fomenting around Satyam since last month when the World Band barred Satyam from business, claiming he had offered inappropriate benefits to band officials. Raju demanded the World Bank retract its allegations. However, Satyam’s troubles came to a head in December when the company tried to buy up two companies partly owned by Satyam’s founders, which represented a last-ditch effort to shore up Satyam’s books. When the deal fell through, there was no longer any way to obscure the financial hole at the heart of the company.
Raju says he is willing to face the legal consequences of his actions.
Raju was once a rising star in India’s technology industry, co-founding Satyam with relatives in 1987 and propelling the firm forward to the top ranks of India’s technology companies. Satyam landed its first offshore contract with John Deere, and eventually counted U.S. firms General Electric, TRW, and Nestle among its clients. Satyam was one of the first firms to capitalize on the outsourcing of IT and technical support jobs from developed markets, and boosted it employee base to over half a million to handle the business.
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