The founder of Satyam Computer Services, once India’s fourth-largest software services firm, was sentenced to seven years in prison after being found guilty in an accounting fraud case dubbed ‘India’s Enron’.
A court in the southern Indian city of Hyderabad, where Satyam was based, on Thursday (April 9) pronounced Ramalinga Raju, a management graduate from Ohio University who founded Satyam in 1987, guilty of forging documents and falsifying accounts.
Raju admitted in January 2009 in a five-page letter that Satyam’s profits had been overstated for years and assets falsified in a fraud allegedly worth over $2.25 billion (£1.5bn), bringing the company to the brink of collapse.
Satyam, which in Sanskrit means “truth”, was sold the same year to the smaller Indian rival Tech Mahindra Ltd in an auction. The company was later merged with Tech Mahindra, a unit of conglomerate Mahindra & Mahindra Ltd.
The Hyderabad court also found Raju’s brother and ex-Satyam managing director, B Rama Raju, as well as eight others guilty and sentenced them to seven years in prison, special public prosecutor K Surender said.
“The judgment given by the court will have far-reaching consequences in checking corporate frauds and shall also act as a severe deterrent,” said Rajesh Narain Gupta, managing partner at law firm SNG & Partners.
All the accused in the case were charged with collaborating to inflate the company’s revenue, falsifying accounts and income tax returns and fabricating invoices among other things, the prosecutor said.
Raju and his brother were also fined by the court Rs55 million (£604,140) each.
Uma Maheshwar Rao, a lawyer for Raju, said the Satyam founder would challenge the verdict in a higher court but did not give details.
“India very rarely prosecutes corporate fraud. And this is the biggest corporate fraud case in South Asian history. So for us, getting a conviction is a big victory,” one of the investigating officers told reporters on condition of anonymity.
Softly spoken Raju, born into a family of farmers, was a poster boy of Indian entrepreneurship after setting Satyam on a path of high growth, hiring thousands of staff and bagging lucrative outsourcing contracts from overseas clients.
“It was like riding a tiger, not knowing how to get off without being eaten,” he had written in his resignation letter in 2009, detailing years of financial deception at the firm.
The confession sent shockwaves through the industry, which had put Raju’s success down to dedication and hard work in Hyderabad, an IT hub that acts as the Indian headquarters of Google and Microsoft.
“Raju was like the messiah of IT for Andhra Pradesh back then,” said KV Kurumanath, an editor at the Hindu BusinessLine newspaper.
“He was looked upon as a god, and a big achiever,” said Kurumanath, who has been closely following the case.
Satyam rose to prominence in the late 1990s when Raju was among the first to spot outsourcing opportunities in the year 2000 roll-over problem, which saw the coming of age of the software outsourcing industry.
The company, which was listed in New York as well as on the Indian stock markets, specialised in business software and back-office services for clients in the United States and Europe.
India’s equity market regulator last year slapped multi-million-dollar fines on Raju for manipulating the firm’s shares during the scandal.
But the case raised concerns about why regulators, who were only prompted to act after Raju confessed, failed to spot the scam earlier, along with corporate governance issues and accounting standards.
“The biggest thing this reveals is the failure of India’s regulatory system,” said S Nagesh Kumar, a news analyst and former editor based in Hyderabad.
US energy giant Enron collapsed in 2001 in the wake of massive false accounting revelations.