MarketWatch: Satyam slumps again as investors dump shares

B. Ramalinga Raju, the disgraced IT mogul behind India's largest-ever corporate fraud, will appear before the country's market regulator tomorrow amid doubts the company he founded has enough money to pay its 50,000 staff this month's wages.

The Securities and Exchange Board of India (Sebi) will ask just how the former chairman of Satyam, India's fourth-largest outsourcing company, was able to orchestrate a £1 billion fraud by wildly overstating the group's profitability, cash reserves and other assets for several years.

Mr Raju faces up to ten years in prison under Indian law if found guilty of misleading investors. The Indian Government has demanded that he is punished to the full extent possible for destroying confidence in the country's coprorate governance system.

The fraud included $1 billion of purely fictitious cash, which Mr Raju had claimed the company had on its books, according to a confessional letter he released on Wednesday.

That the former star businessman was able to get away with such a rudimentary deception has brought into question the role of PriceWaterhouseCoopers (PwC), which had audited the group's accounts since 2000.

PwC's assertion that it had done its duty has been disputed by angry institutional investors. "If you're an auditing company and your client says they have $1 billion in cash, you do checks with the bank", said Hugh Young, the head of equities for Aberdeen Asset Management, which had held Satyam shares.

PwC said in a statement that its work at Satyam adhered to "applicable auditing standards and were supported by appropriate audit evidence".

India's Company Law Board has authorised the government to dismiss Satyam's board and replace them with the government's own nominees. The newly constituted board is expected to meet within a week, the Minister for Corporate Affairs P. C. Gupta said.

He added: "We will soon take coordinated action in the strictest possible manner against erring company officials and auditors."

It had been hoped that a buyer would be found for Satyam, which counts scores of blue chip companies among its clients. However, analysts said yesterday that doubts over the full extent of Mr Raju's fraud made the chances of finding a buyer remote.

Times Recommends

• Lies and cover-up at MG Rover exposed by report
• High oil prices push manufacturing costs up
• Primark founder steps down as chief executive