Founder of Satyam, Software Outsourcing Company in India, Found Guilty of Fraud
NEW DELHI — An Indian court on Thursday sentenced the former head of Satyam Computer Services, a software outsourcing company, and nine others to seven years in prison after a trial centered on one of the largest corporate accounting frauds in India’s history.
The former chairman of the Hyderabad-based company, B. Ramalinga Raju, his brother B. Rama Raju, six other former Satyam executives and two partners of an Indian affiliate of the accounting firm PricewaterhouseCoopers were found guilty of criminal conspiracy to commit fraud.
B. Ramalinga Raju was also convicted of criminal breach of trust, misappropriation of documents, fabrication of documents and falsification of accounts to the company board. The Raju brothers were fined 50 million rupees each, or about $800,000.
Investigators had estimated the loss to investors from the fraud at more than $2 billion.
K. Ravinder Reddy, Mr. Raju’s lawyer, said on Thursday that he would appeal the sentence in a higher court.
The case came to light in 2009 when a resignation letter written by B. Ramalinga Raju, who founded Satyam, was made public, including an admission that $1 billion in cash that was on the company’s books did not exist. Later, he said that he had been falsifying records in an effort to keep control of the company.
According to a charge sheet filed by the Indian Central Bureau of Investigation months after Mr. Raju’s resignation, the fraud played out over at least eight years and involved more than 7,000 forged invoices, dozens of fake bank statements and thousands of overpaid, unnecessary employees. The agency wrote in an 80-page report on the case that the company was able to “make hay while the sun was shining” by selling shares while carrying out the fraud. Satyam attracted potential customers and investors by making them believe that the company was doing a high volume of business, according to the report.
Mr. Raju, who was educated in India and the United States, rose to prominence along with Satyam in the late 1990s, just as the information technology outsourcing business was taking off in India.
“The I.T. offshore business was pioneered by Satyam,” said Kingshuk Nag, who wrote a 2009 book on the fraud.
Satyam’s fall shocked Indian and American investors who had trusted the company’s statements, as well as analysts who had perceived the information technology services industry as relatively clean, free from the corruption that had long plagued India’s corporate sector.
Vidya Rajarao, a partner at Grant Thornton India, said that incidences of corporate fraud were rising in the country. India has remained low on measures like the World Bank’s Ease of Doing Business ranking, which Ms. Rajarao said partly reflected the corruption and lack of transparency in the country. Last year, her firm published a report on corporate fraud with the Associated Chambers of Commerce and Industry of India.
One of the causes of fraud, she said, is “the opportunity to commit the fraud and get away with it because the regulatory mechanism is not consistently enforced,” adding that many cases go unreported in India. The upper house of Parliament passed a bill in 2013 to overhaul auditing practices and impose stricter penalties for fraud.
Other recent corporate fraud cases, none of which reached the caliber of the Satyam case, include a $157 million embezzlement by two executives of the sports apparel maker Reebok India in 2012.
Tech Mahindra, which provides information technology services to the telecommunications industry, bought a controlling stake in Satyam after the scandal, saving it from collapse. Satyam was eventually merged with Tech Mahindra.
