By Diego Graglia, FI2W web editor
As if the global economic outlook wasn’t bleak enough already, India now has its own financial scandal to add to the bad news.
What’s known as the Satyam scandal — after information technology outsourcing firm Satyam Computer Services — became big news on Jan. 7, when chairman Ramalingam Raju resigned, admitting the company had inflated its profits over several years and falsified accounts and assets.
The company’s shares plummeted 80 percent and sent markets “on a tailspin,” wrote Reuters’ Sumeet Chatterjee, who called the case “India’s biggest corporate scandal in memory.” The Satyam case has become India’s own equivalent of the revelations about Bernard Madoff’s alleged swindle in the U.S.
Ramalinga Raju, founder and chairman of India’s fourth-largest software services exporter, said in a statement that Satyam’s profits had been massively inflated over recent years. He added that no other board member was aware of the financial irregularities at the Satyam, which in Sanskrit means “truth.”
Raju himself said about $1 billion of the cash on the firm’s books was fictitious. Trade of Satyam shares was halted indefinitely on the New York Stock Exchange, while the case was reviewed.
In a letter to his board and the Securities and Exchange Board of India in which Raju made the startling revelations, he apologized for his inability to close what began as a “marginal gap between operating profits and the one reflected in the books of accounts” but grew unmanageable, BusinessWeek reported.
I am now prepared to subject myself to the laws of the land and face the consequences thereof.
The case could have severe consequences for India’s financial system. The South Asian Journalists Association newsblog, SAJAForum, quoted The Wall Street Journal‘s Mohammed Hadi, who wrote, “The whole affair — already being dubbed India’s Enron — throws India’s corporate governance into sharp relief.”
…experts today said the fear seems to have come true, although for a different reason.
“Raju has certainly inflicted a huge blow to the India story on the global business arena and the companies across the world would be much more vigilant before engaging any Indian company for their business purposes,” said an analyst.
SAJA last night conducted an audio webcast with journalists and experts from the U.S., India and the U.K. You can listen to it at this page.