EVERYONE loves a corporate scam of the kind at Satyam Computer Services. It jacks up television ratings and keeps the adrenalin of stock speculators pumping and the political rumour mills running. Everyone, except the political executive, that is.
As the dimensions of the fraud unfold, albeit slowly, speculation is rife about who else will join Satyams former chairman B. Ramalinga Raju and five others in the Chanchalguda jail.
Even more than a month after Rajus confession statement to his companys board brought the multi-million fraud out in the open, the throng of investigators are apparently nowhere near cracking the case. Beyond the contents of the confessional statement, the investigating agencies have revealed precious little. Consider that the States Crime Investigation Department (CID), the Securities and Exchange Board of India (SEBI), the Serious Fraud Investigation Office (SFIO), the Enforcement Directorate, the Income Tax Department and the Registrar of Companies are on the job of ferreting out the truth. On a different plane, the Institute of Chartered Accountants of India (ICAI) is looking into the role of the auditors, Price Waterhouse.
Apart from the confession, what is known through petitions filed in courts is that Ramalinga Raju floated at least 330 companies in his name and in the names of his family members. He used them for land transactions, ostensibly to park his funds in capital assets. What is also known from the prosecutions case is that he disposed of 92,000 shares in a single transaction, which was proof that he indulged in insider trading before resigning as Satyams chairman on January 7. Money thus earned came in handy to fund real estate deals of Maytas Properties, Maytas Infra and the ghost companies run by Rajus kith and kin.
Ramalinga Raju has confessed that fixed deposits in banks, which the CID now says had a face value of Rs. 3,300 crore, were fictitious. It is on record that the CID has accused Raju of even fudging the headcount of Satyam from the actual number of 46,000-48,000 to nearly 53,000 and siphoning off the salaries of 5,000-7,000 names thus added. This claim, however, remains a grey area in the investigations. Satyams headcount has been strongly backed by the government-appointed Board of Directors and reaffirmed more than once.
Having approved the Maytas acquisition after asking some tough questions, the erstwhile board of directors of Satyam has also come under scrutiny. According to the Ministry of Corporate Affairs, the investigation by the SFIO will include the involvement and role of directors, including independent directors, in the alleged misrepresentation, falsification and manipulation of information in the financial statements.
Now, is there a connection between the slow pace of investigations and the fear in the political establishment about being exposed in the scam? To verify this, it is necessary to examine the roles discharged so far by each of the above agencies and the involvement of Satyam and the two Maytas companies in government-funded projects. As many as 18 banks, Indian and foreign, had an exposure of Rs.660.48 crore in Satyam, but the 10 public sector banks had taken steps to safeguard their interests.
This brings into the picture Maytas Infra Ltd. (MIL), a public limited company. It is implementing 25 irrigation projects whose agreement value is Rs.16,251 crore. The share of MIL in these is Rs.5,439 crore. Andhra Pradesh Chief Minister Y.S. Rajasekhara Reddy is conscious of the fact that MILs collapse at this stage will set at naught his governments Jalayagnam programme to irrigate one crore acres (one acre is 0.4 hectare) at a cost of Rs.1.5 lakh crore. He has spared no effort to ensure that this does not happen. All partners of Maytas in the different consortiums were summoned and asked to testify to its financial soundness and capability to execute the irrigation projects. They reportedly said they had no issues with MIL and gave it a clean chit.
The CID has emerged as the key to the investigations so far. For, it was the first to gain access to the Raju brothers and interrogate them after they gave themselves up on January 9 night, nearly 60 hours after Ramalinga Raju confessed to committing the over Rs.7,000-crore fraud. But so far the CID has had nothing substantial to show for its labour long hours of interrogation of the brothers and the former chief financial officer of Satyam, Srinivas Vadlamani, and searches of Satyams numerous premises. In all its petitions, it has repeated Rajus confession letter without throwing new light on the various dimensions of the fraud.
This has cast serious doubts on the CIDs wherewithal to investigate such a complex fraud involving manipulation of stocks, violations of foreign exchange laws and breach of well-established accounting practices. The CID has booked him under the following sections of the Indian Penal Code: 120-B (criminal conspiracy), 406 (criminal breach of trust), 417 (punishment for cheating), 468 (forgery), and 471 (using as genuine a forged document). Surely, the offences committed by Raju have a wider dimension insider trading, violations of the Foreign Exchange Management Act (FEMA) and siphoning off of funds, to name only a few.
This is where other agencies, particularly SEBI, stepped in. The stock market regulator found itself red-faced when it could not examine the Raju brothers while the CID hogged the whole credit. It was not until February 4 that the Supreme Court came to its rescue by giving it permission to examine them in jail. The lower court had rejected its petition, while the Andhra Pradesh High Court asked it to wait for some more time.
Nearly one months time had been lost before SEBI got permission to question Ramalinga Raju. During this period, according to the CIDs petition in the court, Raju was able to tamper with evidence even while in jail. In its petition to the Supreme Court, the market regulator described the fraud in Satyam as the worst in the history of the country. In less than one month, the [companys] market capitalisation fell from Rs.15,000 crore to Rs.2,000 crore. The scam, it said, had national and international ramifications.
Under intense scrutiny by the media that the CID was not cooperating with the Central agencies Rajasekhara Reddy dashed off a letter to Prime Minister Manmohan Singh, who was recuperating after a bypass surgery, protesting his governments innocence. He said he would welcome an inquiry by the Central Bureau of Investigation (CBI) to set at rest the allegations of non-cooperation and the charges that his government was going soft on Maytas.
In Andhra Pradesh, the contractor-politician nexus is a well-known reality. Gone are the days when parties got their funds from contractors. Now, the contractors have themselves got into politics. Several past and present members of Parliament and the State legislature have been leading civil contractors executing irrigation, power and road projects. Not to speak of those who are engaged in the liquor trade, run medical and engineering colleges and are deeply involved in the real estate business.
In recent years, however, there has been a paradigm shift in this trend, with those possessing management degrees getting into building airports and sea ports and launching software industries. It is the worst-kept secret that political parties now get their funds from these new-generation entrepreneurs. The NTR Trust run by Telugu Desam Party president N. Chandrababu Naidu, for instance, has admitted to receiving Rs.1 crore from three front companies of Ramalinga Raju.
The Rajasekhara Reddy government is mired in land controversies. In the past four or five years, the Chief Minister, his kin and other Congressmen frequently rebutted allegations that they arm-twisted people to part with premium land in Hyderabad. Such controversies came up during the real estate boom when Ramalinga Raju also began acquiring land. One of his main conduits was the Congress leader from Nalgonda district, Akula Rajaiah, whose name figures in numerous registration documents that validate land purchases by Rajus ghost companies.
The Satyam scam represents a lowering of guard and the throwing of established practices to the wind by those who were expected to safeguard the interests of small investors. The auditors imagined the fixed deposit receipts were genuine, the companys directors overly trusted Raju, SEBI mistakenly thought it could easily get at Raju with its wide-ranging powers, while the CID was too protective about sharing information. Satyam is a fit case for investigators, regulators and auditors not to take things for granted and or be carried away by the sheen of the information technology sector.
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