Raju found guilty in Satyam scam but size of sentence is what really matters
by R Jagannathan Apr 9, 2015 13:01 IST
How many days does it take a legal system to convict a self-confessed white collar criminal?
The answer: Six years and 92 days.
Satyam Comuputer’s iconic former owner, B Ramalinga Raju was today (9 April) convicted for financial fraud that he had voluntarily confessed to on 7 January 2009. During this time he has spent some time in prison, along with his brother and other co-conspirators, but he has been more out of jail than in it as he pleaded ill-health.So the real test of the verdict will be not in the conviction – that should have been a foregone conclusion even for our delay-prone courts – but the quantum of the verdict. If Ramalinga Raju is not given a substantial jail term it will seem as if the downside risks of for swindling shareholders and other stakeholders are too low. It will not discourage future corporate fraud and cronyism.
Before today’s verdict, which found Raju and 10 others guilty for the defalcation at Satyam Computers, Raju was pronounced guilty in another case by the Serious Fraud Investigations Office and fined by market regulator Sebi for other malpractices. In December, the Serious Frauds Investigations Office (SFIO) sentenced Satyam founders B Ramalinga Raju and B Rama Raju to a paltry six months in prison and a fine of Rs 10 lakh, among other things – related to violations of the Companies Act. The penalties were limited by what the Act itself indicated as the upper limit for violations.ers
What this means is that in the main case involving the “fast-track” CBI court, there could be something harsher in store for the Rajus, self-confessed authors of the biggest financial fraud in Indian corporate history to date (read Raju’s full confession here)
But there are rays of hope even in the SFIO verdicts, especially when it comes to penalising independent directors – who ought to have been more vigilant against financial fraud.
The most significant verdict is the one against Krishna G Palepu, an independent director at Satyam when the Rajus were ruling the roost. Palepu is a much-regarded Harvard professor, and he has been asked to disgorge nearly half a million dollars in excess remuneration paid by the company. In rupees, the amount he has to return is Rs 2.66 crore – around $4,30,000.
The others, Vinod Dham, Mangalam Srinivasan, M Rammohan Rao, TR Prasad, and VS Raju were fined only Rs 20,000 each. The logic is not clear, unless they were paid far lower fees in comparison to the star independent director, Palepu.
Clearly, the message the verdict sends is that independent directors are paid to protect shareholder interests, and not just for putting in an appearance at board meetings and consuming snacks. This is especially true of the big names imported from Harvard and Ivy League institutions and top-notch US B-schools. Palepu is the Ross Graham Walker Professor of Business Administration at Harvard Business School and has been quoted often for his views on corporate governance .
Palepu’s bio at Harvard has this to say: “In the area of corporate governance, Prof Palepu’s work focuses on board engagement with strategy.Prof Palepu teaches in several HBS executive education programs aimed at members of corporate boards: ‘Making corporate boards more effective’, ‘Audit committees in a new era of governance,’ and ‘Compensation committees: New challenges, new solutions.'”
Prof Palepu’s first-hand experiences at Satyam would surely have added to his repertoire of what not to do on corporate governance.
The other message that comes from the SFIO case verdict is that punishments for gross transgressions of company law are simply inadequate. If the best the court could hand Ramalinga Raju for his crimes was six months in jail and a Rs 10 lakh fine, one wonders how this is ever going to deter the next Raju.
That a fraud on this scale happened in one of the most celebrated companies shows how little “independent” boards manage to accomplish. This suggests that in smaller companies that pass under the radar, frauds may be even more rampant, and difficult to track and bring to book. Clearly the law and the policing both need to change.
The most sobering message coming from the verdict is this: death by delay.
A financial crime that started with a voluntary confession by Raju on 7 January 2009 takes all of six years to find him guilty and send him to six months in prison and fine him some loose change. Compare this with the minority shareholder cases involving Satyam which were resolved in the US and UK in 2011 and 2012 – two years ahead of us, when all the evidence rests here.
The only thing we did really, really fast was to get the two Raju companies sold quickly to the Mahindras and IL&FS – with the former taking the IT company and the latter the infrastructure company Maytas, which was the cause of Satyam’s downfall. The reason can only be surmised: it was probably about erasing the trail that led from the Raju fraud to his political connections.
We are not quick to deliver justice, but we are super fast in erasing the trails that lead us to the culprits.
April 9, 2015 1:31 pm
Satyam founder Ramalinga Raju sentenced to 7 years
James Crabtree in Mumbai
Ramalinga Raju, former chairman of Satyam Computer, has been jailed for seven years by a court investigating a more than $1bn accounting scandal at the Indian software group.
In 2009, Raju admitted to inflating revenues at Satyam, revealing the biggest accounting fraud in Indian history and prompting soul-searching among other business leaders over lax corporate governance.
On Thursday, a special court in Hyderabad, the southern IT hub where Satyam had been based, sentenced Raju and 10 others to prison on charges ranging from forgery to manipulating accounts. Raju was also fined Rs50m ($804,000).
The sentence, one of the toughest imposed on an Indian business figure, will come as a relief to anti-corruption activists who were dismayed when Raju was handed a six-month prison term by a separate court last December.
Satyam’s near-collapse, which had been compared with the fate of Enron, the US energy group, led to numerous investigations by different regulatory bodies, some of which have yet to conclude.
But analysts said the court in Hyderabad had examined the most serious charges — those most awaited by foreign investors who claimed to have been defrauded.
“This is the big one, no doubt about it,” said TT Ram Mohan, a professor in financial services at the Indian Institute of Management Ahmedabad.
“It is still rare in India for big-time politicians and businessmen to end up in jail. On the face of it is seems to be a reasonable judgment by Indian standards . . . The penalty is quite severe,” he added.
Also sentenced were B Rama Raju, the former chairman’s brother, who once held the position of managing director, along with other executives at what was one of India’s largest outsourcing businesses by revenue at the time the scandal broke.
It is with deep regret . . . that I would like to bring the following facts to your notice
– Ramalinga Raju
Tweet this quote
Investigations at Satyam, which came close to bankruptcy following the scandal, were facilitated by Raju’s decision in 2009 to write a letter confessing to his wrongdoings and revealing the accounting tricks he had used to massage weak corporate performance.
“It is with deep regret . . . that I would like to bring the following facts to your notice,” his letter began, going on to describe attempts to hide the company’s position as being “like riding a tiger, not knowing when to get off without being eaten”.
What remained of Satyam was bought by India’s Mahindra conglomerate in 2012, but the ramifications continued to be felt via demands for stringent changes to corporate oversight rules.
Analysts said the ensuing regulatory tightening had been patchy and was unlikely to prevent a similar case of deliberate fraud by senior management.
Mr Ram Mohan said: “In some areas things have been tightened up but it is not clear that in corporate India there has been a significant overhaul in governance after this case.
“But it is hard to draw lessons about governance if someone just decides to cook the books, which is what happened with Enron as well. All you can do is hand out reasonable punishments to have deterrence, as they have done here.”
Satyam’s Raju, Nine Others Found Guilty of Fraud; An Indian court pronounced Ramalinga Raju guilty of fraud in connection to a $1 billion-plus accounting scandal
- Ramalinga Raju walked out of a court in Hyderabad on March 9.PHOTO:NOAH SEELAM/AGENCE FRANCE-PRESSE/GETTY IMAGES
DHANYA ANN THOPPIL
April 9, 2015 3:32 a.m. ET
BANGALORE, India—An Indian court on Thursday pronounced the founder of Satyam Computer Services guilty of fraud and other charges in connection to a $1-billion-plus accounting scandal that destroyed his company and tarnished the reputation of corporate India six years ago.
The scandal, which some said made Satyam the Enron of India, broke in early 2009 when company chairman Ramalinga Raju wrote a letter to the Securities and Exchange Board of India and shareholders, saying he had falsified the company’s books for years to inflate the company’s earnings.
A special court in Hyderabad, the southern Indian city where Satyam was based, found Mr. Raju, his brother B. Rama Raju and eight others guilty of cheating, misappropriation of funds and falsification of accounts among other charges, said public prosecutor K. Surender.
The court would announce their punishment in a few hours, Mr. Surender said.
Previously one prosecutor had said Mr. Raju could be sentenced to up to 14 years in prison.
The lawyer for Mr. Raju didn’t respond to phone calls and text messages, while lawyers for the others declared guilty couldn’t be located.
The scandal shook corporate India and dented the image of the country’s outsourcing industry. Satyam was taken over by Tech Mahindra Ltd. in April 2009. In July, SEBI found that Mr. Raju and others violated capital-market rules and ordered them to hand over more than $300 million–their alleged gains from the scam plus interest. Mr. Raju and the others have appealed that decision.