A year after the Satyam fraud

9 January 2010

Exactly a year ago Ramalinga Raju went from owning the country's fourth largest IT company, the $2-billion Satyam Computers, to the Hyderabad jail.

His dramatic transit took the lid off a humungous financial fraud, obscured until then by a complex web of fictitious companies, clients, transactions, receipts and even fictitious income tax payment certificates. Corporate India, and very much everyone else, was left gaping in disbelief. The mask had come off an icon of India's celebrated new economy, baring him as a swindler, not just of Satyam's crores but also the trust of millions of shareholders whose wealth, worth Rs 14,162 crore, vanished in one fell swoop on January 7 last year - the day his cunning run came to an end.

So, a year down the line, where is Raju? At the Nizam's Institute of Medical Sciences (NIMS), the chosen sanctuary for VIPs in distress. It's the same hospital where K Chandrasekhar Rao was taken when he went on a fast that led to the Centre's hurried decision to bifurcate Andhra Pradesh and where India's richest MP Lagadapati Rajagopal rushed to when he too went on a fast to reverse the bifurcation decision. Raju is, of course, not fasting. He is apparently being treated for a minor heart ailment, but more worryingly, also for a damaged liver induced by the deadly hepatitis C virus.

Raju has been in jail without bail ever since January 9 last year. Apparently, he was not seriously interested in bail. The reason: Being out would bring him face to face with persons whom he owed money. Barely days before Y S Rajasekhara Reddy's sudden death a little over three months ago, Raju got admitted at NIMS. The Satyam scamster has been in hospital ever since, with a short break in jail. His brother Rama Raju, his finance honcho, Srinivas Vadlamani, and seven others - including the two Price Waterhouse Coopers (PwC) auditors who are accused of colluding with Raju - are still in jail.

Meanwhile, the Central Bureau of Investigation (CBI) has filed three chargesheets. They seek to establish not only Raju's confession of cooking the books of Satyam but also his devious modus operandi. What's more, the CBI claims the swindle is bigger than what Raju has confessed to - that he started siphoning money out of the company two years earlier than what he has claimed. The third chargesheet, filed earlier this week, says that the Rajus produced forged income tax payment certificates - worth Rs 329 crore - from the US and other foreign countries to seek income tax exemption in India. "If convicted, Raju will be put away for at least 10 years in jail," said a top criminal lawyer in Hyderabad. "But the complex scam will have to be established. The Rajus are lining up the best defence lawyers."

Already, Raju has lost control of Satyam and Maytas Infra, the company that he was building for the future. It's believed that it is only a matter of time before Maytas Properties, Raju's real estate firm, too will slip out of Raju's hands. The CBI probe is continuing and a fourth chargesheet would be filed at the end of the present round of investigations which are focusing on how (and if) Raju ferreted money overseas and the channels he used to bring it back into the country.

According to the CBI chargesheets, Raju's giant con began in 1999 - two years before 2001 (the year Raju is claiming he started fudging Satyam's accounts). The money was allegedly diverted to the front companies floated by Raju and his brothers. The accounts of Satyam were settled by writing off this amount as "doubtful advances" . It's hardly surprising that these front companies were involved in agri business, an euphemism for buying land - Raju's big passion to satisfy which hefty amounts were routinely pilfered from Satyam.

As per CBI investigations, the Rajus owned 6012 acres of land in Karnataka, Nagpur, Chennai and Andhra Pradesh, out of which as much 4817 acres of land was in Greater Hyderabad. However, there are many who believe Raju's land bank is even bigger. Given the complexity of his operations, the CBI has probably not been able to detect it all. The CBI chargesheet says Ramalinga Raju, his brothers Rama Raju and Suryanarayana Raju, and their family members "acquired several thousands of acres of land, several thousands of square yards of housing plots and several thousands of square feet of built up area."

What's interesting is that much of the land was owned by privately-held Raju companies in which his extended family members, country cousins and even cooks, drivers and gardeners were directors. These 132 'directors' (benamidars ) have all been booked by the Enforcement Directorate under the Prevention of Money Laundering Act. The benamidars claim they never had any control over the assets or any clue about the papers they were asked to sign. Following their written statements, the ED has attached 297 immovable properties, including a house built on a 4000-square yard plot in Hyderabad's tony Jubilee Hills where Raju's elder son Teja Raju lives. Of course, the attachment order can be challenged in a higher court.

Raju's lust for land had to be met with fistfuls of money. Much of it came illegally from Satyam. Raju borrowed a sum of Rs 1,221 crore from banks on the basis of fabricated board resolutions between 2000 and 2008 and, as per the chargesheet, "misappropriated these monies of Satyam detrimental to its interest." Curiously, the interest on these loans was paid by Satyam. How Satyam shelled out interest on loans that were never reflected in its books without attracting the attention of the audit committee or the board of directors is a matter of surprise. The Rajus also merged a part-owned Satyam subsidiary, the loss-making Nipuna, with Satyam, for which two companies - one incorporated in Mauritius and the other in Cayman Islands - were paid off handsomely for parting with their shares in Nipuna. The ownership of these two companies is still to be established.

There were a host of other tricks. One of them was to create fictitious companies that ostensibly contracted work to Satyam and brought in revenues to the company. To impart credibility in these fraudulent operations, some staffers were also assigned to these 'projects'. From the side of these fictitious customers, fictitious mails were also sent to the staffers from fictitious email accounts to create the impression that the project was being monitored by them. "The scope of the fraud was mind boggling . It required a very twisted, even if sophisticated , mind to conjure it all up," an official connected to the investigation told TOI. The CBI has established that in 2006, just to service seven fictitious customers, an amount of Rs 65.88 cores was actually spent as salaries and other overheads. In the process, Satyam raised 63 bills to demand Rs 431 crore. This sum never came into the company but was shown as received. The result: inflation of Satyam's revenues that helped push up its scrip.

Analysts tracking the case say that nemesis has caught up with Raju and he will be punished not only by the due process of law but also by the hepatitis C virus that doctors say is possibly as dangerous as the HIV virus. But the full story of the fudge will never be known unless Raju decides to bare it all. For now, he is mum: he has said nothing beyond his confessional statement to the police.
Courtesy;TOI