Satyam Computer Services, B. Ramalinga Raju, skimmed huge amounts of cash

Published: January 17, 2009
NEW DELHI — The founder of Satyam Computer Services, B. Ramalinga Raju, skimmed huge amounts of cash from the company, rather than padding its books as he has claimed, a person involved in the investigation of the company said on Saturday.

Investigators looking into the fraud that has been called India’s Enron have found a “maze” of about 300 companies related to Mr. Raju that were used to “siphon” as much as $1 billion in cash from Satyam, said a senior official involved in the inquiry, who was granted anonymity to discuss developments in the case.

The picture emerging from the investigation of Satyam, one of India’s largest technology outsourcing companies, is vastly different from the one painted by Mr. Raju in a confession that stunned corporate India earlier this month.

Mr. Raju, who was Satyam’s chairman, said in a letter to the company’s board on Jan. 7 that about $1 billion of the company’s cash was “non-existent” and that he had falsified its profits for years to avoid losing control of the company. But the person involved in the investigation said that despite Mr. Raju’s claim that he had padded profits, he relied on hundreds of companies to divert money from Satyam.

These companies are registered to Mr. Raju and members of his family. Figuring out what, exactly, happened at Satyam “is becoming increasingly complicated,” this person said, adding that investigators had not figured out where all the missing money wound up.

In his letter to the Satyam board, Mr. Raju said that a marginal gap in the balance sheet had grown over several years to “unmanageable proportions,” and he said he had dressed up the company’s profits to avoid a takeover. He said he had kept the illusion going with the help of his own shares and loans against his assets, and that neither he nor his brother, B. Rama Raju, “took even one rupee/dollar from the company.”

Instead, the person involved in the investigation said, the entire $1 billion Mr. Raju said was faked might have actually been earned by the company but then skimmed from it.

S. Bharat Kumar, the lawyer for the Raju brothers and the company’s chief financial officer, did not return phone and text messages seeking comment.

The three Satyam executives Mr. Kumar represents are being held in a Hyderabad jail on counts of forgery, breach of trust and cheating. On Saturday a Hyderabad judge ordered the executives to be placed in police custody for four days to be questioned.

India’s prime minister, Manmohan Singh, on Saturday called the events at Satyam “a blot on our corporate image.” Satyam’s decline “indicates how fraud and malfeasance in one company can inflict suffering on many and can also tarnish India’s image more broadly,” Mr. Singh said.

The Satyam fraud has shocked India in part because Satyam, like most Indian technology companies, was seen as a corporate governance leader. Satyam’s auditor, Price Waterhouse, a unit of PricewaterhouseCoopers, signed off on the company’s financial statements for years and is now being investigated by India’s accounting board.

A new, government-appointed Satyam board met Saturday to discuss how to alleviate a severe cash squeeze at the company and to fill the vacant management positions. Board members had said previously that Satyam might ask some of its 600 customers, which include General Electric, General Motors and Nestlé, to pay bills early.

Satyam has some 17 billion rupees ($350 million) in payments pending from customers, the new board said last week.

The board has not named a chief executive or chief financial officer and said it would meet weekly until one was found.