Update: India’s Satyam chairman quits amidst "profit fixing" scandal

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Update: India's Satyam chairman quits amidst "profit fixing" scandal

India – It’s being widely reported that the chairman of India’s Satyam Computer Services Ltd., B. Ramalinga Raju, 53, has quit after admitting today in a letter written to the board of directors that he has been “doctoring profits for several years.” This move has had a tremendous effect on investor confidence, and shares plummeted nearly 80%.

Among the profit doctoring are fictitious assets and non-existent cash-on-hand to the tune of $1 billion. The July-September quarter for 2008 had reported an operating profit of $133.4 million, which was overstated by 11x the real result.

The discrepancy was discovered after a “deal intended to save the struggling company was scuppered,” said Raju in his letter to the board. Raju continued, “Every attempt made to eliminate the gap failed. It was like riding a tiger, not knowing how to get off without being eaten.”

Ironically, the name “Satyam” means “truth” in India’s ancient Sanskrit language.

The local stock market benchmark, Sensex index, plunged 7.3% to close at 9,586.88 on the news. Satyam’s stock price fell 78% to 40 rupees. Satyam is also listed on the New York Stock Exchange (SAYPF). India’s Securities and Exchange Board said it will be investigating Satyam.

Satyam is Indian’s 4th largest software services company, and is a “key player in the Indian outsourcing industry.” Raju founded the company in 1987 and has been largely responsible for its success.

Such a colossal series of lies and failure in leadership and responsibility is a great disgrace in India (as it should be here in the United States as well).

Read more via a repost of the original AFP article.

UPDATE:  January 8, 2009 8:38am – The Wall Street Journal today posted two PDFs with additional information. The first is a full, scanned copy of Raju’s 5-page letter to the board. The other is a 1-page response by Satyam’s board to Raju’s shocking disclosures, including this portion:

“We are obviously shocked by the contents of the letter. The senior leaders of Satyam stand united in their commitment to customers, associates, suppliers and all shareholders. We have gathered together at Hyderabad to strategize the way forward in light of this startling revelation” said Mr. Ram Mynampati, Interim CEO (pending ratification by the Board) and Member of the Board, who has been mandated by the Board to steer the company through this crisis.

Satyam confirmed that its immediate priorities are to protect the interests of its shareholders, protect the careers and security of its approximately 53,000 associates, and meet all its commitments to its customers and suppliers.

“We recognize that our associates have committed a significant part of their careers to build Satyam. We will pursue all avenues to secure their future in the company,” added Mr. Mynampati.

Raju indicated in his letter he would be staying on “in this position only till such time as the current board is expanded.” He said, “My continuance is just to ensure enhancement of the board over the next several days or as early as possible.”

He also indicated, “I am now prepared to subject myself to the laws of the land and face consequences thereof. //s// B. Ramalinga Raju.”

The company’s response indicates “Satyam believes that its underlying business model, customer assets and growth prospects remain sound, even in the current challenging financial environment. Satyam leadership expressed confidence that the company will be able to overcome this latest development and continue to provide excellent service to clients, while delivering value to shareholders in the medium to long term.”