The ice is broken. The chairman of a company that was considered one of the torchbearers of India's new economy has confessed to one of the country's biggest corporate frauds.
Satyam is the company and B Ramalinga Raju the chairman, who has now resigned from his post following the revelation of a fraud that might even give scamsters like Bernand Madoff and Charles Ponzi a run for their money.
Satyam's last month's gaffe of transferring funds to promoter group companies by buying stakes in the latter already raised a stink. It led us to doubt the faith that investors had put on a company's management, its independent directors, auditors, consultants and rating agencies.
Simply put, it shook the entire chain of belief that investors had on these parties.
Mr Raju's confession has put nail in the coffin. What is even more glaring is his statement saying that that Rs 5,000 crore (Rs 50 billion), or 94 per cent of total cash on Satyam's books is non-existent, fake!
In his confessional statement, Mr Raju says: "Every attempt to eliminate the (balance sheet) gap failed. As the promoters held a small percentage of equity, the concern was that poor performance would result in a takeover, thereby exposing the gap. It was like riding a tiger, not knowing how to get off without being eaten."
Well, Mr Raju still survives after getting off this tiger! Every other investor has been eaten. And so have the 50,000 employees of the company who must be wondering where they have been brought into.
After all, employment with Satyam might not anymore be an added advantage on their CVs.
He has also admitted that the Maytas deal was 'the last attempt to fill the fictitious assets with real ones.' He goes on to say, "Once Satyam's problem was solved, it was hoped that Maytas' payments can be delayed."
This man has put the whole India growth story at risk by indulging in this fraud. And he is not alone in this. This also brings to light the loopholes in the evaluation systems that boards, auditors, credit rating agencies and bankers apply to judge companies.
The role of companies must be to find creative and productive ways to help build societies of confident and independent investors and citizens. Frauds like Satyam and its chairman is definitely not what we want.
For our subscribers, we are holding back our view on Satyam till further clarity regarding its future emerges.
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