Some have said it has more “shades of Madoff”.
But rest assured, colorful “confession” not withstanding, no one admits to such a major fraud unless pushed. Now there’s new reports that the CEO who broke the story about his own wrongdoing is missing.
From the Hindustan Times:
The country was rocked by possibly its biggest corporate fraud on Wednesday as B. Ramalinga Raju, chairman of Satyam Computer Services, resigned after confessing that the company’s profits and cash reserves had been doctored for several years. This threatens the image of India’s iconic software industry that fuels aspirations for jobs and prosperity among millions of middle-class people.
The revenue figures inflated to keep share prices high and package a shaky business as rosy, revealed a hole well above Rs 7,000 crore and reminded many of the Enron case in the US that led to the conviction of key executives.
The fraud rattled lakhs of employees in the information-technology sector and investors already smarting under the impact of a global financial meltdown and a local slowdown. Key investors — including biggest shareholder Aberdeen — dumped shares as truth became a casualty in the company named Satyam. The company’s share plunged nearly 80 per cent to Rs 40 in India, and 90 per cent in the US, where it is listed on the New York Stock Exchange.
Raju faces a government-led probe after coming clean in what he said was an act of conscience. In a letter addressed to the company’s board, Raju admitted that the balance sheet, riddled with fictitious assets and non-existent cash, contained a big hole that could no longer be concealed….There have been reports that Satyam had been hunting for a buyer for a while. These same reports cited Tech Mahindra and HCL as possible suitors. HT learnt that these companies raised serious questions about the authenticity of Satyam’s books and sought clarifications. This may have forced Raju’s hands.
Actually, Merrill Lynch was hired not too long ago to advise on alternatives to a recent failed acquisition of a firm called Maytas. But as Dennis Howlett reports today, they may have known what’s up. They recently resigned the engagement, prior to the CEO’s stunning disclosure.
“Late last night I started to see reports indicating that Satyam’s investment bankers Merrill Lynch knew what was going on.
According to The Times of India:
I chose the summary of the scandal from Hindustan Times for a reason. It was the only one that did not mention PricewaterhouseCoopers, Satyam’s long-term auditors. Every other report does, often with enormous venom and preemptive accusations, and significant speculation about how they could have missed the US $1billion cash hole, amongst other lies and prestidigitation.
“Riddle me this: in the Satyam affair, where was the billion of missing cash, and why didn’t the auditors catch the discrepancy? Unlike the Madoff scandal in the U.S., Satyam was audited by a Big Four firm – PwC. However, if fraud is involved in the Satyam affair, there may be an argument that the audit firm was defrauded as well.“
I waited up all night for PwC’s press release, finally going to bed at about 1:30 CST. Just as well, since the eventual statement, issued by PwC India was to say the least, underwhelming.
“…What we do understand is that the Minister of Corporate Affairs, Premchand Gupta, has asked for the financial reports review board to actually come forward with an internal auditing papers of Pricewaterhouse as they conducted the audit in Satyam and should report back to the Ministry in three days after which, perhaps, the ICAI accounting regulator will take over, identify the loopholes, identify where the negligence has been, and possibly, frame formal charges on the auditors.”
Although PwC is claiming that, “The audits were conducted by Pricewaterhouse in accordance with applicable auditing standards and were supported by appropriate audit evidence,” I looked to the PCAOB website to see if PwC India has been subject to an onsite inspection.
Fortunately, PwC US, Argentina, Bermuda, Taiwan and UK have been inspected by the PCAOB but, unfortunately, not India. In fact, I do not see a listing on the PCAOB registration roster for the legal entity shown on the PwC website, PricewaterhouseCoopers Private Ltd. I only see registrations for two different legal entities, a Pricewaterhouse and Co. in Calcutta and Pricewaterhouse and Co. in Bangalore.
Is it possible that PricewaterhouseCoopers Private Ltd., in general, and their office in Hyderabad in particular, are no more worthy of auditing NYSE listed public companies than Madoff’s Friehling & Horowitz?
As Jim Peterson has well stated and agreed with me on: Satyam is more like Parmalat (or even Ahold) than Enron and the lawsuits are already flying. The chance for PwC India, and maybe PwC Global, to be severely threatened with extinction has a higher than remote possibility.