We are where we are. The biggest corporate fraud in India’s history was disclosed by its perpetrator yesterday. Where we go from here, as I wrote yesterday, this is a test of our regulators. How they handle this crisis will determine how investors see the Indian market in the future. Frauds happen everywhere. But if in India, fraudsters go scot free or with just a slap on their wrists, we will damage the trust that investors – both within India and outside – must have to get back into Indian markets when things start looking up.
I find it hard to believe that this fraud was committed to inflate earnings. If that were the case, the Rajus would have sold at least some of their stock. Did they believe that this was going to continue forever? As others have pointed out, a 3% operating margin is very hard to believe. The downward pressures on rates in IT Services simply isn’t enough to cause that, assuming that salaries were on par with other IT Services companies. So the question is, where did all that money go?
I think Raju is doing a Madoff – taking the fall for the rest of the family. It is impossible to cook the books of a large company for this long without half a dozen people being complicit. That includes their auditors by the way – PriceWaterhouseCoopers – who must be held to account.
The way this investigation is carried out and its outcomes will be closely watched. The net must thrown wide to catch everyone involved. Follow the money and you will find them. The court cases should not drag out. Justice must be expedited with its proceedings as open to the public as is permitted. And along with the due punishment under law, we must seek disgorgement of ill-gotten gains. It would be a downright shame if at the end of this, just one person gets a light sentence and $1 Billion, or whatever part of it is truly missing, is never recovered.
I understand Merrill Lynch resigned the Satyam account. That doesn’t change the fact that they were advising Raju on the Maytas acquisition, which stank to high heaven.
I wonder what’s going on in the heads of Satyam’s clients? Well for one, every CIO of Satyam’s client companies will be wondering if the people from his company who were involved in the selection of Satyam did so entirely on the merits of their proposal. Next, he’ll be worried about business continuity. A major service provider that’s been delisted on the stock exchange doesn’t exactly give you the confidence that your systems are in safe hands.
On the other hand, this could be a great opportunity for a dirt cheap acquisition. If only we knew what their true accounts looked like.
What an amazing destruction of a company, its shareholders practically wiped out, dispirited employees who would be heading for the door if there were jobs out there and customers who are ruing the day they hired Satyam. And for what! Truly, greed has no limits.