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Let's face it: Almost every other big industry has had its share of drama in the past few months. Finance has certainly had more than a generous helping, between grappling with the credit crisis, greedy CEOs and the infamous Madoff-With-Your-Money. Law has had its due with firm shut-downs and headline-grabbing fraud cases. Government certainly had its moments in the spotlight (outside of the abundant and obvious election-related material and Palin's stand-up routines), from the likes of Spitzer and Blagojevich vying for center stage at the sleaze palace. Consulting, which had been waiting in the shadows, finally gets its moment in Enron-size proportions, and it's all thanks to Satyam Consulting Services, and its founder and Chairman Ramalinga Raju.
In a nutshell, Raju has admitted to falsifying company accounts to the tune of 50.4 billion rupees, or $1.04 billion, in cash and bank loans, India's largest corporate fraud to date. In response, the Indian stock market fell more than 5 percent, and the NYSE stopped trading Satyam stock until further notice. The stock itself plummeted 78 percent as frightened and furious investors cast off 143,009,827 shares in a matter of six hours.
The fiction Satyam fessed up to today is certainly a beast of another order - a tiger, perhaps? In Raju's words, "What started as a marginal gap between actual operating profit and the one reflected in the books of accounts continued to grow over the years. It has attained unmanageable proportions as the size of company operations grew." Drawing on the words of a wise man (Harry Truman), Raju concluded, "It was like riding a tiger, not knowing how to get off without being eaten." Raju, taking the "high road," says he tried to mend the situation by attempting to buy two construction firms in which the company?s founders held stakes, and defended himself by stating that neither he nor his co-founder had ever "taken one rupee/dollar from the company."
After dropping the bomb (read the full text of Raju's letter to the board here), Raju resigned, stating, "I am now prepared to subject myself to the laws of the land and face consequences thereof." Bring in the tigers! Ready for another punchline? Satyam means truth in Hindi. Bah-dum-bum.
In addition to essentially giving its clients away to its competitors on a silver platter, the Satyam scandal raises questions about regulatory oversight and accounting standards in India (nice to know the SEC isn't alone in missing huge frauds), and whether similar time-bombs are ticking away at other Indian outsourcing firms, waiting to be uncovered in due time. Which then begs the question, are we really gaining by offshoring? The old adages, "You get what you pay for," and "There's no such thing as free lunch" come to mind.
More to come as the story unfolds.
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