Byapaar.com – The Indian Business Blog

In an unprecedented move, Mr. Ramalinga Raju, promoter and Chairman of Satyam Computer Services, the fouth largest IT company in India has announced that he has been showing false and inflated data in the company balance sheet for years. He stated that from what was a minor gap in the company book when it was a company with only handful of employees, the magnitude of the problem grew with that of size of the company that currently employs around 53,000 and has operations in 66 countries worldwide. It boast of serving one third of Fortune 500 companies and also the US government.

Satyam has been under scrutiny since World Bank banned the company in October for allegedly installing spywares in some of their computers which Satyam denies. Then, in December Satyam management faced a revolt by investors for a proposed takeover of two companies engaged in construction for approximately $1.6 billion. It has later been found that Mr Raju has big stakes in those two companies.

Since then a tussle between the board and shareholders has been going on and shareholders have been demanding resignation of the Chairman and complete overhaul of the board. In the meantime it was found that promoters were just holding meager stake in Satyam as they have pledged most of their shares with lenders against loans. All these controversies led to huge loss of Satyam’s shares at the stock market. Already speculation was doing the round that Mr. Anil ambani – the Chairman of cash rich ADAG group might step in for a friendly takeover.

The problem got so big that Mr. Raju had no alternative but to reveal all his frauds and resign because he no longer has enough stake to control the company and if others seek to take over- they will find all the wrongdoings by him once they go through Satyam’s books.

Analyst say that Mr. Raju has not only damged future of Satyam but has created a bad impression on whole IT and outsourcing industry of India. Some commentators say that foreign clients might loose confidence in Indian companies as there is a big question mark on India’s corporate governance and transparency of their operations. Otherwise how could Satyam keep on with the fraud despite being auditored by world renowned accounting firm Pricewaterhouse Coopers?

Amidst all these, top leadership at Satyam has resolved that they would carry on and make Satyam a transparent corporation. But the maimum damage has already been inflicted not only for Satyam but questions are being raised on corporate ethics of whole Indian Corp. Shame on Satyam.

Enough talk of the economic and financial crisis on my last few posts. So now let it pass by for some time and get little bit personal. Yes, sometimes I do write some posts which might be personal but might be useful to my readers if I share my experiences with them.

Today, I’ll focus on some fraudulent companies posing as up and coming financial or insurance companies. Some companies also pose as investment funds looking to raise funds for investment in certain industrial or realty projects.

Their modus operandi is quite impressive. Most of the time they target the country side – in rural and semi urban areas where a huge section of people have good income. These people have very little option to leverage their savings as they have little choices. Only traditional fixed deposits or recurring deposits at banks and post offices are available. So when good speaking marketers enter their domains with promises of huge returns within a short period of time for seemingly small investments – the unsuspecting villager falls prey. The company representatives carry with them some glitzy leaflets, brochure of their companies and give lectures on how they will grow as big as Peerless in the next few years.

Just last week, someone from a certain company approached me to invest in preferential shares of a new company working for government projects in West Bengal little knowing that I run a business blog and am well versant with the industry though I might live in a non-descript corner of India. When he started his usual sweet lecture about who the big shots are already in their board of directors, I politely asked him to show all the government approval papers and if they have the required documents from concerned authorities. He told that – he is not authorized to carry original documents! But all the information may be found on their website! Now here is a catch they usually use to allay suspicion of prospective clients. As internet penetration and literacy is too low in India, people from semi urban areas have a mystic impression about the internet and websites because they don’t know about it whatever their educational qualification might be. Most of the time they get convinced and the fraud run away with their hard earned money.

These financial agencies also offer extra benefits such as commission to get newer investors and it works on chain system. Someone with pure commonsense might understand that these are nothing but big SCAMs and Ponzi schemes. Otherwise they can never pay up the promised returns.

The most depressing thing about this whole phenomenon is that, cheated individuals have no where to go for complaints as most of these deals are done at homes and legal actions can hardly be taken due to lack of proper evidences. The so called company executives roam around from place to place and have no permanent or temporary office nearby as they claim that their company is still new and has only the registered office. The obviously promise to set up their office here in the future once their client base has grown substantially so that they can process client claims locally. But as I mentioned before –most of these are frauds, scams.

So be very careful with such shady companies. My advice would be – don’t fall for them at all. Just excuse yourself when such people approach you with offers. If you have intentions to save, save it in time proven schemes such as bank deposits, LICI policies, post office deposits. After all, there was a newspaper report recently that top leaders from across parties are all followers of traditional saving schemes like KVP, Government bonds or just normal recurring deposits.

In a recent survey by international consultancy major KPMG on corporate India ( “India Fraud Survey Report – 2008? ) , it has been revealed that fraudulent activities have become a huge concern to companies. The study has revealed that, corporate fraud has increased 54 percent since a similar report was done in 2006. Financial sector is leading the pack followed by real estate and infrastructure sector.

The survey shows that companies pay bribe or other facilitation payment to do business in India. And senior management employees are most likely to get involved in these shadow dealings than other employees as they have access to sensitive company information and can override controls. The unethical behavior and lack of clearly laid down anti-fraud measures have made India Inc. a haven for thugs. Service providers are also involved with corruption in a big way. Its no surprise that losses caused due to fraud or corruption is mounting really high. (continue reading…)