It was just over three years ago when Satyam chairman B. Ramalinga Raju addressed the crowd at TeleManagement World and threw away his script to talk solemnly and with seemingly heartfelt sincerity about the plight of developing countries and how important it was to spread wealth around the world.
He bragged about how his company was taking advantage of virtualized consulting and IT services to be the fastest company in India to get to $1 billion run rate and how “innovation can be used as a new way of engaging the rest of the world.”
Today, he was arrested, along with his brother on fraud charges, including forgery, breach of trust and criminal conspiracy to the tune of $1 billion. The rest of the board’s directors have been fired.
Documents from auditor PricewaterhouseCoopers LLC’s local unit are being examined by the Indian corporate affairs minister.
The company’s stock has plummeted over the last two days as rumors of the pending arrest spread and Raju could not be found. Rumors of the company’s financial officer committing suicide remain unverified.
Bloomberg reported that interim chief executive officer Ram Mynampati said Jan. 8 he was unaware of the false accounting that may force Satyam to restate earnings as he relied on audited statements. The local unit of PwC said in a statement the same day Satyam’s accounts were supported by “appropriate audit evidence.”
Shareholders have lost $2.2 billion in wealth from this alleged fraud. The offenses carry a maximum prison sentence of 10 years.
Satyam employs about 53,000 people and has offices from the U.S. to the U.K., Brazil and Australia. The company writes software and manages computer systems for large enterprises.
Three weeks ago, Satyam proposed paying $1.6 billion for Maytas Properties Ltd. and Maytas Infra Ltd. Both companies have ties to the Raju family and investors brought it to a halt calling it a “woeful misuse of cash.”
In his resignation letter, Raju said trying to control the revenue gap from misreporting revenue was “like riding a tiger, not knowing how to get off without being eaten.”
He told the board that neither himself, his managing director, not their spouses sold shares in the last eight years “excepting for a small proportion declared and sold for philanthropic purposes.”
Opportunity awaits other Indian outsourcers such as Tata Consulting Services, Infosys and Wipro, provided the reputation of this market isn’t tainted overall. Accenture and IBM are well positioned to pick up the slack as well according to Rod Bourgeois, a technology services specialist at Sanford C. Bernstein & Company.
However, “The golden age of very high growth and financial returns is over,” said John C. McCarthy, an analyst at Forrester Research. “But Satyam and the current economic troubles do not change the fundamental economics of offshore outsourcing.”
Forrester projects that the offshore outsourcing business will grow by 17 percent annually through 2012.
