Satyam - Insider Trading

There seems to be something seriously wrong with the Andra Pradesh police. They not just blatantly ignorant of corporate crimes but also just being puppets for the powers-that-be commandeering from the background.
Its evident from fumbling they perform at every press meet. To start with they just refused to act. While there was some public outcry for Raju's arrest they were standing on some technicality saying they have not received any formal complaint. This drama went on for 4 full days while the Rajus were busy tampering evidence and wiping away trails.
Suddenly the cops got very active and kicked up the Number of Employees scandal. The newly constituted board claims there is no discrepancy in the payroll while the AP police vehemently maintains that there is at least a difference of 11000 employees and when on to speculate on the payroll amounts that were swindled.
Today's papers carry a report from the AP police on Insider Trading by Rajus. Carefully reading the report its clear the cops have no clue on what is insider trading. In a long press meet yesterday in Hyderabad they we busy complaining that the Rajus had committed Insider Trading offenses as well. Pouring over the report and rereading it over and over I could not see any evidence to insider trading.
Over enthu but grossly uninformed. God Bless them for their ignorance.

PwC

Yesterday I posted saying PwC much be banned in India. Today ICAI has said if Satyam failures are proved and the two arrested directors are found guilty then PwC will be banned in India.

Maytas is a list company

Sorry. I had earlier by oversight mentioned that Maytas is privately held. No its a listed company and they went public recently. Which only adds more woes to Teja Raju and his brother.
Error is regretted

The Saga Unfolds - A New Twist

The saga unfurls. No thriller is more twist ridden than the Satyam saga. Today's reports suggest that there is large scale diversion of funds into real estate for Maytas projects. So this implies that their there is no over reporting of profits. Or in other words Satyam did make profits and these profits where correctly reported but illegally diverted. This also implies that the cash was available and was siphoned out for Raju's sons' projects. And this is perfectly illegal.
For a enlightened mind this is actually good news. How ?
If Satyam had been reporting non existent profits then well.. the profits are non existent. And if this has been going on for 7 year & with an accumulated non existent cash in excess of Rs 7200 crores the company would have run aground choked of liquidity given their high fixed cost in terms of wages , staff expenses & rentals. But did did not happen because CASH WAS THERE to meet all these running expenses. The surpluses were skimmed away outside the company & funnelled into real estate. Clearly a case of blood being thicker than Satyam.

So whats the good news ? Not just good news but sweet news is the cash is in the form of REAL estate ( note the capitalisation of "real" ). Its in a different form a better form but outside Satyam. So what ? Isn't this better than reporting non existent profits to such astronomic levels ? Such large amounts cannot be transacted in cash. Hence the bank trail is easy to trace and establish the crime and the fruit of the crime - the property. Once proven transfer the title to Satyam and its books can be made healthy. Isn't news from heaven ?

Still with me. Good.

Where were we ? Well Maytas.

Maytas reportedly has Rs 70,000 crores worth projects in the pipe line. Being a privately held Maytas did not have to explain this to SEBI or the share holders. So surplus cash from Satyam was channeled into Maytas & Maytas went on a buying binge. The big question is why the sons are free and so merry. Will they not be busy tampering evidence & clearing up trails ? Should not the authorities clamp down on the whole group freezing all bank accounts and seizing all the documents of Maytas Projects & Maytas Infra.

The powers that be have been very slow to act right from the word go. A hand for them is not ruled out.

If the above inference is true then the Raju's offences are less damaging to Satyam and themselves. There is an outside chance they may get away with a slap on the wrist. Imagine the fund trails lead to the property and properties transferred to Satyam at book value then Satyam's finances are shored up and Satyam is sure out of the woods and any kind of uncertainty. This is not just good news but great news.

L & T. Smart or dumb

S-M-A-R-T.

But how ? Read on.

There is going to be bottom fishing. A lot of it. Barring BIFS most of the other industries the world over have a mountain of cash. Unlike the earlier recessions wherein most corporates were caught on the wrong foot this one perpetrated by the sub prime meltdown was in the making for at least 3 years. If it looks like a bubble, squeaks like bubble, talks like a bubble chances are its a bubble. Yes. It was a bubble and the mother of all bubbles.

Also this meltdown was after 28 continuous quarters of global growth and expansion. The world never had it so good. The first of its kind in human history. ( There are no records for any previous such expansions if any ) And there was and is a lot of cash slashing around. In the last 12 months the cash is still there but not exactly slashing around. Quietly waiting for the right moment. And now is the moment for L & T.

When a company like Satyam fails there is still a lot of residual value in the bits and pieces. Usually other players pick up the company in parts to fit into their existing operations and synergies. Same thing is likely to happen for Satyam as well. Essar is interested in Satyam BPO. Not their development part. A successful suitor will acquire a failed company sell non core parts to other raise cash and part payoff the acquisition cost popularly called "Vulturing" This is the likely eventuality for Satyam as well.

But L & T is a different case. L & T had a small stake in Satyam even earlier. But its timing for the second tranche of purchase was very very badly timed. Just 24 hours before Raju let the cat out of the bag L & T paid Rs 640 crores to acquire 4% of the total equity. The shares crashed the very next day and L & T's investment vapourised by nearly 66%. Well nearly Rs 435.6 crores. But this in only a notional loss.

Again this week L & T has acquired an additional 8 % to take its holding to 12 % of total Satyam paid up capital. With another 3 % L & T will reach the statutory level where a open public offer becomes mandatory. This leads to set of SEBI rules about public offer price and a host of other complications.

PriceWaterhouseCoopers

Should be banned and banished from India. The Big Four are so big that even Uncle Sam is scared. Also this leads to US companies dominating the Indian accounting scene and denying large Indian firms from growing. But this is not the reason for me to propose a ban on PwC. Sorry don't get me wrong.

These big ones are believed to be more trust worthy than Indian firms. But PwC has been hand in glove with criminals. Accepting forged documents and failing in their duty of verifying records. I am not ready to believe that PwC was so naive to accept without verification FDRs and bank statements without directly obtaining authenticated reports from banks.

Irrespective of the enterprise type, proprietary, partnership or company of the annual turnover exceeds Rs 40 lakhs, law in this land requires auditors to verify every voucher, every ledger entry and every bank statement. Here the lapses are so grandiose PwC should be barred from doing audit business in India and appropriate legal action initiated on them. In my humble option the fraud perpetuated on the gullible investor is more by PwC by their omission than by Satyam by their commission.

The entire purpose of an external auditor is beaten by PwC and this has been going on for year. Some sections of the press state that PwC was paid Rs 5 crores as their fees viz a viz Rs 2 crores for similar jobs. If this were true then the difference of Rs 3 crores is nothing but bribe for this turning a blind eye on this large scale fraud.

Corporate Rhyme

Raju Raju---Yes Papa

Eating Profit---No Papa

Cheating Public---No Papa

Telling Lies----No Papa

Open your Books----Ha. .Ha..Ha.. .

L' Affaire Yahoo !

Arun Sarin said to take up the Yahoo! CEO job. N-O W-A-Y. Arun just completed a long and ostensibly successful stint at Vodafone and left London and Vodafone at the right time. The telco and the industry are in perpetual cross roads. With the tech tsunami happening every day in the industry a longer terms for Arun at Vodafone was considered not so advisable. So the move.
But then Yahoo! is a sinking ship. No strategy. Low morale. And Google overshadowing Y! in all ares, technology, media buzz, revenues and stock price. After the Microsoft mess up Y! sure needs a CEO with a vision, a strategy and a team to implement it. With none of the 3 in hand why would Arun risk his reputation. It simply does not add up. He has the international skills & recognition and will be in no hurry for his next assignment. To entice his with money will be dumb.
So Yahoo ! Who is your next victim ?
Technorati Profile

Everybody loves a good scandal

Its only once in a while we get a good scandal like the Satyam Saga to talk , write, scandalize, speculate and some times go over board to the extent of lying to hold the attention of the reader / listener / viewer.
But this one is beyond the imagination of all the scribes. It exceeds our expectations and lives up to all our imaginations. Raju's team has kept us engages by the grand scale and all encompassing crime. They seem to have systematically covered every section of the CrPC and the Securities Act. Its earlier to list the offences they did not commit.

Satyam Saga - A new twist

Insider Trading. Yes. This seems a real possibility. Given the magnitude of the fraud and the long time it has been going on - nearly 7 years - the only incentive for the top honchos to keep the show oops - keep the fraud going is the high market cap of Satyam shares. When a total collapse is imminent and you are in the know if it, what do you do - loot and run. This is exactly what Raju & Co did. Eighty lakh shares were sold. That is 80,00,000.
There are also media reports that the C-Execs tipped off FI & FIIs about the developments is a bit far fetched. But possible. The reason being Quid Pro Que. I help you reduce your losses & in return you bail me out. With market cap crashing every day with more bad news and redemption pressures on MFs and other institutional investors and low, lower, lowest NPVsthis tip off saved more than Rs 1000 crores in a single day. The math is very simple.
But is the offense nail able ? On Satyam top brass - yes. On outside investors - very difficult.
The law is very simple. If you are an employee in the know and if you had sold shares and in the next few days there is news or a press release which leads to a drop in share price then it is by definition Insider Trading.
But the FI tip off story is slightly different since they are not insiders and the tip off is difficult to prove except when it leaves a trail like email or sms. ( the ICICI Bank customer raid on the bank after the banking collapse was based on rumours spread on sms and same was traced down to a sub broker in Erode of a leading broking firm. This was done in 48 hours and legal action initiated )
But in the Satyam Saga the FIs pre knowledge is difficult to establish and given the earlier faux faus of Satyam in the Maytas fiasco & the general weakening of the markets can be cited as reason enough for bulk share sales and get away scot free. But Satyam bosses cannot.
Fraud of mega scale, forgery, use of forged documents and now insider trading. Any other offense left out ? God Bless Corporate Greed.
PS : How much more murkier can it get ? The story continues.......
The next edition : The mind of the fraudster. How it all happens.

The New Board

The speed at which GoI acted is amazing and the way this Satyam issue and earlier the Mumbai Carnage post 26 /11 and the resultant Indo-Pak friction is being handled - I will give a thumbs up to UPA. Composed & Collected.
The new board is insufficient though very competent.
None of them has run a software giant a la Satyam. Satyam was sure a name to reckon with in the past 20 years and running such a company under the present conditions takes extraordinary staying power, shrewed marketing skills and financial ingenuity of the right kind to see Satyam thru this mess. Vivek Paul is sure the right candidate available. His experience in Wipro is very valuable.
But Vivek is busy with his venture investment firm and may not be so keen on taking up this assignment. But with the right kind of pitch by the right kind of people he may be game.
If its not Vivek who else ? Plan B ? Thinking...........

Satyam Saga Part VI - What next !!!

With 2 class action suits ( aka Mass Tort ) nobody will touch Satyam even with a barge pole. The breath and depth of the damages of the litigation is unpredictable. Most of the assets of the company are intangible. Also nobody know the extend of damage caused by Raju and his criminal chums. The kind of cases registered on Raju covers the entire major crimes in the Indian CrPC including forgery and use of forged documents. ( these are 2 different but related crimes )
With Mass Tort the awards to the ADR holders may be a few thousand dollars or a few million dollars each. Depending on how the courts in US treat this case which may take at least 2 years to end will be a traumatising wait. Satyam cannot survive so long which is for sure. GoI will not pump in any funds into Satyam since its unprecedented in independent Indian history. So this option is ruled out. But the 52 K employees and the shareholders of Satyam cannot be ignored atleast in the present economic circumstances.
The only viable & unvercelly acceptable solution will be for GoI to offer sovereign indemnity to possible suitors from the Mass Tort in the US and do a thorough due diligence and get any other respectable auditors arrive at a reasonable valuation for the company and palm it off to L & T Infotech.
L & T will not be a willing acquirer but a reluctant one since with all the damage to Satyam's reputation retaining employees and customers will be major challenge for the new owners. L & T will not merge Satyam with itself but will retain Satyam as a seperate company but as a subsidiary for a long while to come. A US $ 2 billion company merged with L & T will bring down the market cap for the parent i.e. L & T which nobody wants now. The saga continues.

Why Confess ?

Satyam Saga Part III
So you confess to come out in the clean. And will give you immunity against prosecution. No way. But then in this case Mr Raju confessed not to emerge clean or to unburden his consciences as reported by the press.
Boy its simple. His stake in the company has been reduced to about 3%. A hostile or friendly take over of management control is imminent. With such an event round the corner a due diligence is the first thing to happen & every thing will spill out. This eventuality is dreadful to say the least.
So Raju had no choice but to admit his sins.
Raju certainly has no criminal image now. And the powers that be in the state admin are in no hurry to act on him. This is clear. He may get off lightly which is distinct possibility.
Now to brass tacks. What will happen to Satyam ?. The GoI for a change acted right. There were no contradictory statements from various quarters. In fact there was a erie silence. But when the GoI acted they acted swift & decisive. Quickly they dissolved the board. Cancelled the scheduled board meeting and announced that the centre will appoint a set of 10 government nominees to the board as interim directors. This was smart and quick without the usual political rhetoric. And the statement that " employees and stakeholders interests are primary " was another unusual but appropriate response.

Satyam Saga Part II

And the plot thickens.
Was money siphoned out ? Anybodies guess. A large scale fraud executed with the connivance of top honchos inside the firm and a big 4 audit firm PriceWaterhouseCoopers playing active supporter.
Padding up inventory, inflating assets & accounts receivable are one way of window dressing. The other known option is accounts payable and slightly understating other creditors / accounts payable. These practises are difficult to nab and easy to reverse.But the game Satyam played involves cash / bank balances and accrued interest. Its beyond the comprehension of even a mundane fin guy like to understand how is this possible. Bank statements are irrefutable documents and cant be fooled around with - at least so I thought. But Satyam seems to have managed even this. So blatant is their misstatements that even a basic accountant can figure out the gross errors in a public company where detailed statements are freely available.
Nothing could be more flagrant.
Now was funds syphoned out ? Possible. Quite possible. Only a thorough investigation by RoC can reveal the fact and the extent.
But why take money out ? Does not add up.
At Satyam there seems to be no truth expect in the name.
Two class action suits already filed in US where Satyam ADRs are listed. Severe cash crunch. Citibank and others frozen the accounts chocking inflows. All the makings of an implosion. At the moment looks clear Satyam will grind to a halt before the financial year ending except for a government intervention.
The IT industry got recognition for India and led a strong economic growth since Y2K. But this is disgraceful. Satyam had won accolades for corporate governance but this is the ultimate shame.
Shame on Satyam, the IT industry and India as a whole.
And now where is Ramalinga Raju ?
Is not leadership about leading from the front ? In hiding he only adds credence to all rumours. If he were a true leader he should come upfront take all the blame and save the remains what little of it. This is his hour of reckoning and this man is in hiding.
Nothing could be handled worse.

Satyam Story

First it was an attempt to acquire 2 companies owned by his sons. Then it was share buy back and finally its number fudging. Have all the skeletons tumbled out of the cupboard ? Looks like yes.
Seems unrelated events but bad timing right ?
Wrong.
See the tumbling of the events from the reverse.
There was figure fudging going on for a while. Which Raju was aware of. He tried to acquire Maytas for all the cash in the company not for the love of his sons or the promise of the infra biz. But simply to conceal the missing cash. In real estate its possible to conceal or reveal any amount of cash if you have a so called Land Bank. We all know real estate is the ultimate black money sink which is bottomless pit if you so prefer.
It appeared simple to acquire Maytas so records for payment of non existent funds can be created and Raju will never get caught. This back fired since US $ 1.6 was the total cash available and surprisingly the amount involved in the deal. Smells rat right ?
Right or wrong many factors like sons company , all the cash & wrong timing to invest in infra company all added up to a fateful week for Raju.
His game plan was OK. To clean up the books and save Satyam and himself. Had he tried to acquire a friendly accommodative IT company overseas and did that in multiples of US $ 300 to 400 millions over the next few years he could have accomplished the mission in installments but successfully. After all the fudging has been going on for 7 years. The sins of 7 years cannot be - more importantly - should not be cleansed in 1 go. That is the only goof up.
Better luck next time Raju ( if there is one )