Scam, a word of western origin and made popular in India by Sucheta Dalal in the year 1992 with the Harshad Mehta story but, who knew the term was here to stay. There are reasons due to which the stock market space is considered and looked down on as a non-ethical space. There are always a good side and a bad side to any story and the same applies to the stock market too. All kinds of people use the stock market to make or break the fortune of their life, some of them use this space and gain the fortune by taking it as an ethical space by worshipping the market and some use this for notorious concepts like manipulation, Insider trading etcetera. Although for the shorter time both the kind gets rewarded but, for the longer term, the stock market only respects the ethical practices.
Not to mention, but it is obvious that for malpractices the laws are getting stronger and harder with each incidence that is unfolding in this l country.
While the Sensex was trading at 190 in the initial days of the stock market the biggest scam took place wiping a huge sum of Almost near 5000 crores which was later known as the famous Harshad Mehta Scam or the 1992 scam and guess what? SEBI was near to non-existent without any specific hold or power in the market. After this incident, SEBI was granted with powers and it became the principal governing body of the stock market space.
Today we will take a look and get to the dark depths of another such real incident which happened in India during the stock market and economic crash of 2008 with a much bigger footprint and magnitude which once again highlighted the loopholes in the governance of the corporate affairs just like the 1992 scam but with a much larger magnitude of 7000crores and that too in the presence of laws and governing bodies like SEBI.
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We are talking about none other than the “Satyam Scam” which was executed with a plan of such perfection that the Raju brothers almost got away with it but, as the saying goes truth always prevails they had to confess without any choice left.
Let us get some answers to the questions like How did it all happen? What was the story? Why did the Raju brothers did so? and How it all went unnoticed for 8 years?
The Story Behind Satyam Scam
It all started with a company founded by Rama Raju and Ramalinga Raju known as Satyam computer services in the early years of 1987 while the 1992 scam was already cooking. It was a company that provided BPO and software services for clients from over 87 countries and soon became a competitor for the IT market leaders like TCS, Infosys and Wipro.
In 1991 due to the successful business and performance, it got listed in the Bombay stock exchange with an IPO subscription of more than 17 times soon becoming a market leader or that’s what the record book said claiming multiple awards by the company and the founders itself like the young entrepreneur award and what not.
The revenues and profits were skyrocketing without anyone having any idea of the scam that was cooking in the backend of the system attracting investors and shareholders to invest in the company. In 2003 the company touched the 1 billion mark in revenue and in 2008 just before the unfolding of the scam it recorded 2 billion in revenue and became the market leader in the particular field.
The stock price of the company was trading for more than 550 rupees in 2008 which eventually saw a fall to 11 rupees before getting acquired by Tech Mahindra for almost a third of the valuation. So, you must be wondering when everything seemed so perfect What went wrong with the company? What eventually happened that made the company fall on its knees?
It was the Fundamentals, the basic mere fundamentals of the company.
The lie
What if I said everything was a lie? All of the revenues, the records, and growth numbers that attracted the investors and the awards were plain lies including the stock price which was used to sell the stake at higher prices grabbing a huge 1200crores by the founders.
The founder Raju was found saying that “It was like riding a tiger, unable to get down without being eaten”, and it was actually a perfect statement for the whole scenario that unfolded eventually.
The founder along with some of the companies head figures fabricated all of the fundamental data including the revenues and the profits year on year which led to an incremental price increase of the stocks of the company attracting more investor trust in the company.
Raju planned to declare the merging of the company with a real estate firm owned by the founder itself named Maytas filling all the gaps but, the decision was not approved by the shareholders leading to the reversal in 12 hours.
Soon after the CEO and founder resigned with a confession of fabricating all the data.
A gap of nearly a billion from loans from the banks was non-existent in the records. Raju has also drawn fake salaries from fake accounts of almost close to 13000 employees and used the opportunity to sell the shares of the company at higher prices when the company was at its peak.
Whistleblowing attempts were made when the director received emails unfolding the truth about the ongoings in the company.
But, now the question arises what about the auditors of the company, how could not spot the ongoings for.
Almost eight years when the investigators spotted the fake bills and gaps within a span of only 19 days?
The answer was the auditors Pricewaterhouse Coopers (PwC) were also involved and were charging more than two times the charges it usually takes to audit the companies financials and balance sheet making it all legitimate over the years.
Conclusion
Just two days after the confession was made the founder Raju was arrested and a CBI investigation took place revealing more than 100 land deals and numerous fake employee records. The PwC auditing license was deemed for 2 years and the Sensex took a huge hit not only in the numbers but the future trust of foreign investors.
It was the biggest scam after the 1992 scam with a figure of almost 7000crores and much more serious actions were taken to cope up with this crisis which shook the country and its economy.
