Satyam Officers Had Help in Fraud, Investigators Told

7, March, 2009

Top executives at the large Indian outsourcing company Satyam Computer Services did not act alone when they committed a multibillion-dollar fraud that left the business struggling for survival: They apparently tapped a team in the company’s finance department to help them.
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Several managers and about 10 junior staff members in the finance department of the company created a paper trail to cover up the fraud, the former chief financial officer told investigators over the weekend.

This team fabricated and prepared false documents like sales invoices, bank statements and bank confirmations, the former chief executive, Srinivas Vadlamani, told India’s top accounting body. He said that he also had taken part in the fraud.

Mr. Vadlamani, who is now in jail, said that he had tried several times to resist the instructions to commit the fraud but that he could not because of a “master-servant relationship.”

His description indicates that the “scam had occurred owing to a carefully crafted fraud by creating normal trails and backup support documents and records,” the Institute of Chartered Accountants of India said in a statement Monday. The accounting body said it had questioned Mr. Vadlamani in its effort to determine whether Satyam’s auditing firm, PricewaterhouseCoopers, had been involved in the fraud.

Two of the global accounting firm’s auditors have been arrested in connection with the Satyam fraud. Neither the auditors nor the company’s independent directors were involved in the fraud, the former chief financial officer told his questioners. The Indian accounting group’s president, Prakash Agarwal, said the interrogation had “vindicated his belief about the credibility of the auditing profession.”

In January, B. Ramalinga Raju, the Satyam chairman, shocked Indian markets and his company’s hundreds of global customers when he said he had faked operating margins at the company and falsified its books.

At the time, Mr. Raju said he had acted without the knowledge of the company’s board and many top managers. He has been jailed.

The former finance chief’s statement comes as the government and a new board are trying to sell a majority stake in Satyam. Several companies are planning to bid for a 51 percent stake.

A winner is to be announced next week.

Even before Mr. Vadlamani’s description of events was made public Monday, analysts were questioning whether all of the eight potential bidders looking at Satyam would actually name a price. “We believe that some of the key bidders will exit discussions quickly,” Forrester Research said in a report Friday.

As Mr. Vadlamani’s account of events became public, the Central Bureau of Investigation said three additional people from the finance department had been arrested. They were identified as G. Ramakrishna, a vice president; Srisailam Chetkuru, an assistant manager; and Danthuluri Venkatpati Raju, a senior manager; it was not clear whether he was related to the chief executive.

At its apex, Satyam served more than a third of the Fortune 500 companies; its clients have included General Electric, General Motors, Nestlé and the United States government. It asserted it had a work force of 53,000.

Satyam’s market capitalization on the New York Stock Exchange was $7 billion at the end of May 2008; it is now around $835 million.
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