Huge fraud at Indian tech outsourcing firm rocks markets
Revelations of a huge corporate scandal in India triggered a plunge in the country’s markets today and cast a shadow over stocks worldwide, just as investors had been regaining confidence in recent weeks.
Ramalinga Raju, chairman of one of India’s largest technology outsourcing firms -- Satyam Computer Services Ltd. -- resigned after admitting that he had falsified earnings and assets.
Raju, who founded Satyam in 1987, is a corporate legend in India. Accounting firm Ernst & Young named him its "Entrepreneur of the Year" in 2007.
From the Washington Post:
Raju, 54, took responsibility for the fraud and resigned in a letter he submitted to Satyam’s board. The letter said that the company lied about profit and revenue for several years, inflating revenue by 33% and profits more than tenfold between July and September of last year.
Television commentators quickly dubbed Satyam "India’s Enron."
The beleaguered Raju, who had been in the news recently for a controversial acquisition fiasco, said that every attempt to eliminate gaps in the balance sheet and fill the "fictitious assets with real ones" and "non-existent cash" failed.
"It was like riding a tiger, not knowing how to get off without being eaten," he wrote in the letter. " ... I am now prepared to subject myself to the laws of the land and face consequences thereof."
Satyam’s shares plunged 78% in Mumbai trading. The market’s Sensex index plummeted 7.2%, its biggest one-day drop since October.
Trading in Satyam’s U.S. shares was suspended.
From Bloomberg News:
"This is a black day for India, the software sector and corporate governance claims," Arun Kejriwal, founder of Kejriwal Research & Investment Services, said in Mumbai. "If at all there’s an event that could be the biggest setback for corporate India, it is this."
-- Tom Petruno
Photo: Ramalinga Raju. Credit: EPA
His statement about riding the tiger says it all so eloquently. Once you begin a lie you have to keep lying to cover the previous deception. A lesson here for our new President who is not beginning in such a good manner as one scandal and yet another swirl about him and his associates. Better to come clean, admit that you are not as good and perfect as people think but from then on be honest and do your best. That is all we can ask of anyone.
Posted by: nmoore6676 | January 07, 2009 at 12:36 PM
Looks like cooking the books is not just an American problem. Until regulators everywhere restore faith that the financials are real, investors are going to stay out of stocks. If we see a few more companies pulling an Enron, like Satyam did, we may see another investor run on the stock markets. Thanks to ADP, the January market decline starts one day earlier than I anticipated. Tomorrow's Dec'08 retail reports should be quite interesting.
Posted by: Mr.Bilko | January 07, 2009 at 01:59 PM
As long as markets are around that hold out possibility of gain people will participate in them. I doubt that the nether, primordial regions of our brains distinguishes 'advantage', however brought about, from the standpoint of morality. Whatever 'regulation' is conceived by man can be defeated by man.
Who among us really cares if the horse race is fixed, provided we have a winning ticket?
Posted by: martscan | January 08, 2009 at 10:10 AM