Indian Court Jails One for Corporate Scandal

An Indian court has sentenced the former head of Satyam Computers and nine others to seven years in prison in one of the country’s biggest ever corporate scandals.

B Ramalinga Raju, who founded the software services giant, denied charges of conspiracy, cheating and forgery but admitted to accounting malpractices. Raju was also fined $800,000. The collapse of Satyam Computers in 2009 cost shareholders more than $2bn and rocked India’s IT industry.

The BBC’s Simon Atkinson in Mumbai says it is the biggest fraud at a listed company in India.

The convicted men are expected to appeal. The maximum sentence Raju faced was life in jail. It’s often described as India’s Enron - and certainly the fraud at Satyam had much in common with the scandal that brought down the US energy giant in 2001.

In both cases, the men in the boardroom systematically inflated profits in order to make their companies appear much healthier than they actually were.

Enron executives also concealed substantial debts. Both affairs, when they came to light, caused widespread shock and undermined confidence in the corporate sector.

But the consequences of the Enron scandal were much greater. It caused the company to collapse. 20,000 employees lost their livelihoods and shareholders lost more than $70bn.

In the case of Satyam, the Indian government intervened to keep the company operating and engineered a takeover by the Mahindra Group. Shareholders still lost money, but the wider fallout from the scandal was much more limited.

Satyam was one of the biggest players in the booming Indian software market. The jobs of 50,000 Satyam workers were only saved after the government intervened.

Another Indian firm, Tech Mahindra, bought a controlling stake in the company in April 2009.

“All the accused have been convicted of almost all charges,” prosecutor K Surender told reporters outside court,

Those convicted include two brothers of Raju. The scandal emerged in January 2009 when Mr Raju, one of the pioneers in the Indian IT industry and Satyam’s founder and then chairman, confessed to manipulating his company’s accounts and inflating profits over many years to the tune of about $1.15bn.

In a letter to the board he claimed he had fudged the numbers in order to be in the top four of the Indian IT industry.

“The concern was that poor performance would result in a takeover,” he told shareholders. “It was like riding a tiger, not knowing how to get off without being eaten.”

Prosecutors say that when the scam unraveled, it cost shareholders $2.3bn at today’s rates. The scam had been going on for nine years and the confession sent shockwaves across the industry.

Court papers filed by India’s stock market regulator said that Mr Raju along with 13 other friends and family made about $400m in illegal wealth in the scam - by cashing in on a surging share price - offloading stakes in the company at a high price and making substantial profits despite knowing that accounts were overstated.

Raju was arrested in January 2009 and jailed before being bailed two years later. He also spent nearly a year in hospital being treated for hepatitis.

Satyam had been one of the biggest players in the booming Indian IT software market, supplying back-office services to firms from around the world, including General Electric and Qantas Airways.