We still don't know truth about Satyam

The big scare from the Satyam fraud, one year on, is how ill-prepared the Indian state is to take action against a corporate fraud committed on such a massive scale. One year into the 'anniversary', the prime accused in the case, Ramalinga Raju, has still not made any sworn statement before any level of the judiciary.

Of course, there is every possibility that Raju and his core team will still be successfully prosecuted on at least some of the sections of the Indian Penal Code and will spend some years behind the bars. But there is little chance any of the investigating agencies will crack the two key questions of where all the money went and who had their hands in the till, beyond the immediate top management team at the erstwhile Satyam.

What are the bases on which one can be reasonably sure that these puzzles are unlikely to go away? Without any light shed on these questions, the largest ever fraud in Indian corporate history will remain just as it is today, without any answer. Let us examine the money trail first.

The Raju brothers had apparently been inflating the receipts of the company for years, with the aid of all possible tricks. This included software forgery, which must have been the easiest bit for them to do to generate false receipts and expenditure bills.

The company was, therefore, presumably siphoning the money off somewhere. It could have been real estate or the share markets. In either case, the agencies have not tracked this trail. If they had done so there would have been arrests at those ends—we have heard none on that score. So either they are dead ends or the money never came in. The second case would be very surprising, as it would raise questions on why then should the promoters have resorted to the elaborate cover up. If the idea was to ramp up the price of the shares and then offload, surely there were easier means of doing. Till the time Raju was arrested, the shares he had offloaded were definitely nowhere near to justify the scale of the jugglery.

To recount the chain of events, on December 16, then Satyam CEO Ramalinga Raju made a startling announcement that the company will invest $1.6 billion in Maytas Infrastructure, run by his son. The plan was slammed by the institutional investors, because of which he was forced to retract before the night was out. Finally, he sent an explosive letter on January 7 to Sebi accepting responsibility for cooking the books for a long time, amounting to Rs 7,800 crore.

The company going by the records audited by the Hyderabad-based Price Waterhouse, had invested the sum principally in various fixed deposits of banks. This is the bigger surprise in the revelations. For years, the sum was reflected in the annual accounts of the company, along with, as it now turns out, fictitious deposit numbers. Why didn't the banks named in the reports blow the whistle on them? But neither the CBI nor the more culpable Serious Fraud Investigation Office (SFIO) has taken up this strand to its logical conclusion. Are we scared that some bank bosses could lose their jobs? That is unlikely, so the stakes must be higher here, too.

This is the second question. There were more hands in the till than the Raju brothers. The CBI charge sheet pins the blame on the brothers and the audit firm Price Waterhouse. The SFIO probe does even less. This is incredible. A fraud of such proportions just could not have been managed within such a small group, planning against an entire system of checks and balances. If, as it indeed turns out, these people had been able to plan it out without any outside help, then we ought to rewrite huge sections of our audit rules, Company laws and even the Sebi Act to prevent malfeasance of this scale. There is no evidence of that happening. The proposed amendment in the Company Act predates the Satyam case and very few sections are planned to be rewritten subsequently.

The implication therefore is plain. The rules were okay; instead the fraud took advantage of loopholes that only positions of power could provide. That would also provide the answers to the question of why Raju milked the system for so long. He had a fine company and a finer set of clients, as the recent success of Mahindra Satyam attests to. That was a good enough road to prosperity, unlike Ponzi schemes of guys like Bernie Madoff in the US. This is also possibly the reason why Raju has not had to make any suo motu statement so far. As we had said at the beginning of this year, the Satyam saga is turning out to be an example of a cover-up, rather than a full-blown investigation.

subhomoy.bhattacharjee@expressindia.com

Source: http://www.financialexpress.com/news/column-we-still-dont-know-truth-about-satyam/554494/0