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Satyam Scandal, Its Detection and Aftermath Research Paper

The Satyam scandal was a corporate fraud that primarily affected an Indian-based computer service company known as Satyam as well as other partnering companies. The scandal started in 1999 and erupted in 2009 after Merrill Lynch exposed Satyam’s illegal financial practices (Banerjee, 2015). Ramalinga Raju, the company’s chairman, corroborated the allegations by revealing that he had been manipulating financial accounts for many years. The scandal shocked the whole world because Satyam was renowned for its exceptional corporate governance. Moreover, the ethics of conducting business, as well as those of the accounting profession, were challenged. For instance, the reputation of PricewaterhouseCoopers was tarnished as it was Satyam’s official accounting firm (Basilico, Grove, & Patelli, 2012).

The firm was fined highly by the US Securities and Exchange Commission for engaging in unethical accounting practices, violating the code of conduct, and disregarding the auditing standards (Banerjee, 2015). The magnitude of the fraud contributed to its comparison to the Enron scandal. Both scandals led to the bankruptcy of involved companies, shareholders lost billions of dollars, top executives were imprisoned, stock prices plummeted significantly, company auditors were found guilty, and top management manipulated financial accounts to fool investors and the public into believing that the companies were performing well financially. The Criminal Bureau of Investigations (CBI) held Satyam’s founders guilty for manipulating financial accounts. The chairman was sentenced to seven years of imprisonment for inflating financial statements to the tune of $1.1 billion. 94% of the money recorded in the company’s financial accounts was fictitious and was intended to fool investors and other stakeholders into believing that Satyam was performing well financially (Jones, 2011).

Company’s Short Summary

Satyam Computer Services Limited was an Indian IT service company that merged with Tech Mahindra in 2013 to form what is currently known as Mahindra Satyam (Jones, 2011). Satyam Computer Services was based in Hyderabad, India, and was listed on the National Stock Exchange, Bombay Stock Exchange, and the Pink Sheets (Banerjee, 2015). It was established in 1987 by Raju, his brother, and brother-in-law. Satyam’s core services included software development, engineering design, software integration into systems, ERP solutions, consultation, IT outsourcing, electronic commerce, customer relationship management, and system maintenance (Basilico et al., 2012). The company operated in 45 countries across the world and provided information technology services to more than 270 companies in different parts of the world (Banerjee, 2015).

The expertise of Satyam’s employee had led to partnership deals with 76 Fortune 500 companies, hence, its rapid expansion into a top IT company in India. Satyam’s rapid growth was based on core organizational values that included belief in people, customer orientation, the pursuit of excellence, and entrepreneurship (Basilico et al., 2012). On the other hand, the company had a strong organizational structure and culture that divided each division into an independent entity. Each functional unit was run as a self-regulating enterprise with its own resources, departments, and finance management. The firm’s organizational culture was founded on Sytam’s five C’s approach, namely communication, collaboration, competency enhancement, customer intimacy, and competitive edge. The company’s rapid growth was also partly due to its numerous subsidiaries and joint ventures that included Dun & Bradstreet Corporation, Satyam Infoway Limited, Maytas Properties, Satyam Venture Engineering Services, Nipuna Services, Maytas Infrastructure, Ca Satyam ASP, Satyam BPO, and Knowledge Dynamics. Satyam worked with both small companies and big organizations.

These collaborations improved its image as a global IT company and leader in corporate governance. Its improved image led to more partnerships with international organizations. For instance, in 2003, Satyam signed a partnership deal with the World Health Organization (WHO) to provide IT services (Jones, 2011). Two years later, the company was ranked highly by Global Institutional Investors for its exceptional corporate governance. In 2008, Satyam was awarded the “Global Peacock Award” by the World Council for Corporate Governance (Basilico et al., 2012). Satyam’s corporate accountability award was ironic because a few months later, India’s biggest scandal erupted and revealed the company’s unethical corporate governance (Niazi & Ali, 2015). The scandal was unexpected because of the numerous awards the company had received for corporate accountability. The world was unaware of Satyam’s internal problems that were eating away its finances and reputation.

How the Fraud Happened

According to the Central Bureau of Investigation (CBI), the scandal began in 1999 when Satyam embarked on a plan to multiply its annual growth (Basilico et al., 2012). The main growth strategy involved the manipulation of financial statements. The purpose of altering financial accounts was twofold. First, the chairman wanted to keep the company’s share price high in the various stock exchanges that it was listed (Caliyurt & Idowu, 2012). A high share price was an indication that the company was doing well financially. On the other hand, it was a strategy to increase investors’ confidence in the company. Second, Raju wanted to boost the company’s market capitalization in order to attract more investors (Bhandari, 2009).

This strategy worked because Satyam was awarded by many organizations for its remarkable growth and corporate governance. For example, the World Economic Forum awarded the company for its rapid growth in the field of entrepreneurship (Niazi & Ali, 2015). The scandal was made public in 2009 when the company’s chairman, Ramalinga Raju, revealed that he had manipulated financial accounts to the tune of US$1.47 billion (Banerjee, 2015). Raju stated that the fraud began as a marginal gap between the company’s actual operating profit and the numbers that appeared in the account books. Between 2003 and 2008, the company created false clients, projects, and invoices in order to falsify the company’s financial performance, improve its profile in the IT sector, and attract more customers (Basilico et al., 2012). In 2009, Satyam falsified its sales and recorded RS 5200 crore instead of the real Rs 4100 crore. In addition, profits were inflated from 3% to 24%.

The financial results announced in 2009 were highly inflated. For instance, quarterly revenues were inflated by 75%, while operating profits were inflated by 97 percent. The marginal gap widened over the years, and when it was too wide to hide, the chairman confessed to engaging in illegal accounting practices (Caliyurt & Idowu, 2012). According to Raju, the manipulation was done because of the fear that the company’s performance would lead to a hostile takeover (Bhandari, 2009). The company’s promoters held a small percentage of equity that was not enough to boost the company’s financial performance. As the company grew, the marginal gaps grew so big that the chairman could no longer hide the company’s poor financial performance. Satyam’s fall began in 2008 when its revenues crossed the $2 billion mark (Bhandari, 2009).

On 16 December 2008, Raju announced that the company was planning to purchase two companies belonging to Maytas. He argued that using the company’s money to buy Maytas Infrastructure Limited and Maytas Properties Limited would be beneficial to investors (Bhandari, 2009). Satyam’s investors rejected the proposal because the two companies were operated by Raju’s family (Caliyurt & Idowu, 2012). Investors were dissatisfied with Raju’s leadership style as well as the company’s corporate governance. The World Bank surprised Satyam by canceling all business transactions between them and imposing a suspension (Bhasin, 2013). The Bank accused Satyam of bribing employees and providing staff members with unauthorized benefits that raised suspicion of unethical corporate governance (Niazi & Ali, 2015). In addition, the company was accused of stealing data that is used to improve its business operations.

The suspension caused a further 14% decline in share price, which was the lowest Satyam had experienced in over 4 years. These events led to the resignation of Mangalam Srinivasan, Vinod Dham, Rammohan Rao, and Krishna Palepu (Bhandari, 2009). The resignations and plunges in share price exposed the company’s poor financial situation. As a result, Raju, in a letter to employees, revealed the financial fraud, and stepped down as the chairman (Niazi & Ali, 2015). He disclosed that buying the two Maytas companies was his last attempt at altering the company’s financial accounts by replacing fictitious assets with real assets (Bhasin, 2013). He was trying to cover up his unethical practices. After the fraud’s disclosure, the government took over control of the company and began investigations into the scandal. The Raju brothers were accused of forgery, cheating, conspiring to commit fraud, and breach of trust (Caliyurt & Idowu, 2012).

Participants in the Fraud

The chairman of the company was the mastermind of the fraud because he commissioned the manipulation of financial books (Caliyurt & Idowu, 2012). Other participants were his brother B Rama Raju (managing director), Vadlamani Srinivas (chief financial officer), Subramani Gopalakrishnan, Talluri Srinivas, Suryanarayana Raju, Prabhakar Gupta (internal chief auditor), G Ramakrishna, D Venkatpathi Raju, and Ch Srisailam. Raju was the fraud’s mastermind and confessed to inflating profits over many years without the knowledge of investors (Nag, 2013). Srinivas Talluri and S Gopalakrishnan were the auditors affiliated with PriceWaterhouseCoopers who were among the accused. Satyam’s CFO revealed that he had overstated the company’s employees by 10,000 in order to benefit from the Rs 20 crore payments made to the fictitious employees’ salary accounts (Bhasin, 2013).

A raid into the house of Raju’s younger brother and a participant in the scandal led to the discovery of 112 sale deeds of land purchases that were obtained unethically. In 2015, the court found the two guilty and convicted them on two counts of fraud and criminal conspiracy. However, PriceWaterhouseCoopers rejected the ruling stating that there was no evidence of the two employees’ knowledge of the management-led fraud at Satyam during their tenure as auditors. The verdict was disappointing to PriceWaterhouseCoopers, and the accused considered filing an appeal for what they felt was a lack of justice.

Seven days after Raju admitted to manipulating financial accounts, PriceWaterhouseCoopers revealed that its auditors presented a falsified audit report (Bhasin, 2013). The auditors had used manipulated financial statements provided by Satyam’s management team. The auditors played a key role in the fraud because Satyam’s head of global audit fabricated customer identities, created fake invoices to inflate the company’s earnings, and falsified board resolutions and secured loans without following legal procedures (Bhasin, 2013). The money acquired through American Depository Receipts in the United States was misappropriated because it was always excluded from Satyam’s balance sheet (Nag, 2013).

The company’s promoters played a significant role in the fraud as well. For example, they sold their shares at inflated prices and took advantage of unsuspecting investors. The stake of the promoters in the company declined from 25.6% in 2001 to 8.74 in 2008 (Bhasin, 2013). This decline in ownership revealed that the fraud was premeditated and that the participants planned to steal money from investors.

As on Promoter’s stake in Satyam (%)
March 2001 25.6
2002 22.26
2003 20.74
2004 17.35
2005 15.67
2006 14.02
2007 8.79
2008 8.74
Dec 2008 2.18

Table 1: changes in promoters’ shareholding in Satyam between 2001 and 2008 (Bhasin, 2013).

A large percentage of the cash raised by the company was used to buy land in order to take advantage of the realty market that was blooming (Caliyurt & Idowu, 2012). The land was then put under the management of two companies owned by Raju’s family, namely Maytas Properties and Maytas Infrastructure (Bhasin, 2013). These lucrative purchases left little money that Saytam could use to fund its day-to-day operations. The company was destined for failure because a large percentage of the money and bank balances are shown in the balance sheet were non-existent (Bhasin, 2013). As the chairman made more unethical decisions, the problem grew bigger, and every attempt made to eliminate the gap failed. In the letter, Raju admitted that he did not know how to end the problem without compromising the well-being of the company.

According to the Serious Fraud Investigation Office, Satyam paid Rs. 186.91 crores as a tax within a period of seven years for fictitious fixed deposit accounts that top executives had created to siphon money from the company (Bhasin, 2016). The company’s software developers and system administrators also played a minor role in the fraud. For example, details of Satyam’s financial accounts were stored in two different Internet Protocol (IP) addresses. The company’s IT specialists participated in the fraud because they created fake invoices and bills for inclusion in the balance sheet (Bhasin, 2016). They used advanced software programs to create fictitious invoices and bills. The fraud went on undetected for many years because a secret program had been incorporated into the source code of the company’s invoice management system.

The software possessed the capability to hide invoices in the system. Therefore, it was very difficult to detect any unethical dealings within the company. The company’s top executives used 356 investment companies to siphon money from Satyam (Bhasin, 2016). Transactions between these companies and Satyam include loans, advances, and inter-corporate investments that were aimed at stealing money (Caliyurt & Idowu, 2012). It was easy to make such decisions because the company’s most influential executives were working together. In addition, the participation of auditors ensured that the fraud went on for many years without being detected. The role of the auditors was to ensure that Satyam did not engage in unethical accounting practices. However, their contribution was critical because, for the many years that they audited the company’s accounts, they never identified any unethical dealings. After the fraud’s discovery, they confessed that they only relied on the financial statements they received from Satyam’s management (Caliyurt & Idowu, 2012). Their lack of vigilance was appalling.

People Who Lost Money

Little information is available regarding the major losers in the fraud. However, investigations revealed that Satyam’s investors lost more than $2.2 billion, mainly due to the company’s share price dip in the stock market (Jones, 2011). Other losses were incurred from the fictitious invoices, salaries, and bank loans created by management. For example, Raju would approve loans to investment banks, take the money, and buy land. He also created 6000 fictitious salary accounts and took the money whenever the company paid the fake employees (Jones, 2011).

How the Fraud was Detected and the Aftermath

The fraud was detected by investment bank DSP Merrill Lynch when its auditors found numerous irregularities in Satyam’s financial statements (Caliyurt & Idowu, 2012). The bank had been hired by the company to find either a partner or a buyer. After discovering financial irregularities, the bank terminated its working relationship with Satyam (Brooks & Dunn, 2014). Raju’s resignation was initiated by the bank’s decision to reveal its unethical accounting practices to the public (Brooks & Dunn, 2014). Prior to the fraud detection, the chairman encouraged unethical accounting practices because he thought that his decisions would have long-term financial benefits to the company. He stated that his actions were aimed at helping investors grow their investments (Caliyurt & Idowu, 2012). However, the effects of his decisions were so severe that it became difficult to hide the company’s poor financial situation.

The company’s investors became suspicious when the chairman presented a proposal to buy two companies affiliated with his family for $1.6 billion (Brooks & Dunn, 2014). After rejecting the proposal, the chairman had no other strategy to conceal the marginal gap that had been created by many years of unethical accounting practices. The rejection of the proposal by institutional investors was a big blow to Raju and his team because they had exhausted their options (Nag, 2013). The fraud was finally exposed after Raju wrote to employees admitting to engagement in unethical accounting practices in order to misrepresent the company’s financial situation (Caliyurt & Idowu, 2012). The company had reached a dead point because the marginal gap between the real financial figures and the virtual ones became so big that Raju could not hide it anymore. Had he not disclosed his illegal dealings to employees, the company would have collapsed because of insufficient cash flow to run its operations. On January 9, 2009, Raju resigned as Satyam’s chairman after confessing that the company had been engaging in illegal accounting practices for many years (Brooks & Dunn, 2014).

After the fraud was exposed, Merrill Lynch terminated its working relationship with Saytam, PriceWaterhouseCoopers was investigated and suspended from operating, Credit Suisse dropped Satyam as a client, and the awards given to the company as well as its executives were taken back (Caliyurt & Idowu, 2012). The share price fell drastically and investors lost about $2.28 billion (Brooks & Dunn, 2014). Participants were arrested and investigated for participating in the fraud. The Ensex index declined by more than 5% and the company’s share price fell by more than 70%. The government appointed new board members to find a solution that would mitigate the problem and prevent the company’s collapse (Caliyurt & Idowu, 2012). The board was responsible for finding a buyer for the company within 100 days. Finally, the company was sold to Tech Mahindra.

The Process of the Trial

The first step in the Saytam scandal trial was the arrest of Ramalinga Raju, Ramu Raju, former managing director, head of internal audit, and CFO (Jones, 2011). They were arrested on the charges of fraud and professional misconduct. Several PWC auditors were also arrested and charged with criminal fraud. The trial lasted 7 years and resulted in the conviction of Raju and nine others. Sections of the Indian Penal Code sued to convict them included 120B, 477-A, 471, 467, 420, 409, and 468. They were guilty of cheating, criminal conspiracy, criminal breach of trust, forgery of valuable security, forgery for cheating, and falsification of accounts (Jones, 2011). Raju was sentenced to seven years in prison.


The Satyam accounting fraud is the largest fraud scandal to happen in the history of India. It was conducted over a period of about 10 years by the company’s chairman and other top executives. It is evident from the foregoing discussion that Satyam’s management did not honor the code of ethics and standards that govern the accounting profession. They inflated their financial accounts in order to present a false image of their company’s financial performance. The scandal was exposed by Merrill Lynch after discovering financial inconsistencies in the financial statements of Satyam. The chairman and other top executives resigned, the company’s share price fell drastically, investors lost $2.2 billion, and the government appointed a board to handle the situation. The company was sold to Tech Mahindra, and the two entities merged to form Mahindra Satyam. The Satyam accounting fraud occurred due to many years of financial manipulation of accounts that was intended to fool investors and the public into believing that Satyam was performing well financially. Such occurrences can be avoided by adhering to accounting ethics, honoring business ethics, and by promoting transparency and accountability within organizations.


Banerjee, R. (2015). Who cheats now: Scams, frauds and the dark side of the corporate world. New York, NY: SAGE Publications.

Basilico, E., Grove, H., & Patelli, L. (2012). Asia’s Enron: Satyam. Journal of Forensic & Investigative Accounting, 4(2), 142-160.

Bhandari, B. (2009). The Satyam saga. New York, NY: Business Standard Books.

Bhasin, M. (2016). Creative accounting practices at Satyam computers limited: A case study of India’s Enron. International Journal of Business and Social Research 6(6), 24-48.

Bhasin, M. L. (2013). Corporate accounting fraud: A case study of Satyam computers limited. Open Journal of Accounting, 2, 26-38.

Brooks, L. J., & Dunn, P. (2014). Business & professional ethics. New York, NY: Cengage Learning.

Caliyurt, K. T., & Idowu, S. O. (2012). Emerging fraud: Fraud cases from emerging economies. New York, NY: Springer Science & Business Media.

Jones, M. J. (2011). Creative accounting, fraud and international accounting standards. New York, NY: John Wiley & Sons.

Nag, K. (2013). The double life of Ramalinga Raju: The story of India’s biggest corporate fraud. New York, NY: HarperCollins Publishers.

Niazi, A., & Ali, M. (2015). The debacle of Satyam computers Ltd: A case study from management’s perspective. Universal Journal of Industrial and Business Management, 3(2), 58-65.

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