Huge fraud at Indian tech outsourcing firm rocks markets
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Revelations of a huge corporate scandal in India triggered a plunge in the country’s markets today and cast a shadow over stocks worldwide, just as investors had been regaining confidence in recent weeks.
Ramalinga Raju, chairman of one of India’s largest technology outsourcing firms -- Satyam Computer Services Ltd. -- resigned after admitting that he had falsified earnings and assets.
Raju, who founded Satyam in 1987, is a corporate legend in India. Accounting firm Ernst & Young named him its ‘Entrepreneur of the Year’ in 2007.
From the Washington Post:
Raju, 54, took responsibility for the fraud and resigned in a letter he submitted to Satyam’s board. The letter said that the company lied about profit and revenue for several years, inflating revenue by 33% and profits more than tenfold between July and September of last year. Television commentators quickly dubbed Satyam ‘India’s Enron.’ The beleaguered Raju, who had been in the news recently for a controversial acquisition fiasco, said that every attempt to eliminate gaps in the balance sheet and fill the ‘fictitious assets with real ones’ and ‘non-existent cash’ failed. ‘It was like riding a tiger, not knowing how to get off without being eaten,’ he wrote in the letter. ‘ ... I am now prepared to subject myself to the laws of the land and face consequences thereof.’
Satyam’s shares plunged 78% in Mumbai trading. The market’s Sensex index plummeted 7.2%, its biggest one-day drop since October.
Trading in Satyam’s U.S. shares was suspended.
From Bloomberg News:
‘This is a black day for India, the software sector and corporate governance claims,’ Arun Kejriwal, founder of Kejriwal Research & Investment Services, said in Mumbai. ‘If at all there’s an event that could be the biggest setback for corporate India, it is this.’
-- Tom Petruno