If you thought Bernie Madoff’s scam was the only deca-billion-dollar fraud going on, think again.
Satyam Computer Services Ltd. Chairman B Ramalinga Raju admitted to falsifying company accounts and inflating revenues and profits in company books. Following the announcement of the accounting scandal today, the company’s shares bottomed out, and are currently trading at 1 cent.
Raju had inflated the company’s operating profit for three months ending in September 30 from 610 million rupees to 6.48 billion rupees ($136 million), while revenue was inflated from 21.12 billion rupees to 27 billion.
The company reported an operating margin of 24%, but it was actually 3%.
Raju also said Satyam’s balance sheet as of Sept. 30 had a non-existent cash balance of 50.4 billion rupees; nonexistent accrued interest of 3.76 billion rupees; an understated liability of 12.3 billion rupees; and an overstated debtor position of 4.9 billion rupees compared with 26.51 billion rupees reflected in its books.
“This has resulted in artificial cash and bank balances going up by 5.88 billion rupees in the second quarter alone,” said the executive.
To recap: The company claimed its operating profit was 10 times bigger than it was and claimed it had 50.4 billion rupees when it actually didn’t, among a list of other bookkeeping transgressions. Stockholders were left holding the empty company coffers. There is no word yet on any protections of the stockholders, though if the Madoff investors won’t be protected by the SEC, it is unlikely that Satyam investors will be covered by the SEC’s Indian equivalent.
Any of the regular non-mega-rich people out there are left wondering when these kinds of fraud will end.