The BBC's Sanjoy Majumder tells anchor Lisa Mullins about the latest scandal to hit the financial world. The chairman of India's outsourcing giant Satyam resigned today after admitting that the company's been falsely inflating its profits for years.
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LISA MULLINS: I'm Lisa Mullins, and this is The World. Another day, another financial scandal. This one comes from India. The company under the spotlight this time is Satyam Computer Services. Satyam is a major player in India's technology and outsourcing industries. Satyam's Chairman resigned today, after admitting that the company's profits had been falsely inflated for years. The BBC's Sanjoy Majumder is in Delhi. How many years has this company been doctoring the balance sheet?
SANJOY MAJUMDER: Well, according to Mr. Raju, at least four years. Although there's some fear that it might have been taking place for longer than that.
MULLINS: And this is Ramalinga Raju, who is the Chairman of Satyam Computer Services. What does the company do?
MAJUMDER: Well, it's one of India's largest IT companies. Effectively, it's got clients around the world outsourcing all kinds of applications, from simple call-center operations to backroom data processing. Some of its clients are some of the world's biggest companies, Fortune 500 companies. And of course, they were listed under NASDAQ. So it's a very, very large and prestigious company.
MULLINS: Listed under NASDAQ. They're also located with development centers in California, Chicago, New Jersey, Hartford, and other places as well. So here's what the now-resigned Chairman of Satyam has said in a statement. He was talking about this $1 billion-dollar hole in the company accounts, and he wrote to the Board, “Every attempt made to eliminate that $1 billion dollar gap failed. It was like riding a tiger -- not knowing how to get off without being eaten.†Nice visual there, especially since this is supposedly a tiger economy. What is your reaction to that statement?
MAJUMDER: Well, it's a startling admission of fraud. And if you basically go through the details of what he laid out in his letter, every year Satyam claimed to have money it simply did not have – by way of profit, by way of interest, by way of financial assets -- and every year that number kept growing and growing. But nobody in the company or even outside it had any idea that what they've been doing for years was cooking the books. This is a company that's listed as one of the year's best-performing IT funds. What's more important is that it's on the reputation of companies like Satyam that India has built this reputation worldwide for being one of the biggest centers for the outsourcing business. So it's a massive psychological blow not just to the company but to the economy as a whole.
MULLINS: So has the announcement of this fraud and the resignation of the Chairman had an effect on the stock market in India?
MAJUMDER: Yes, it has. I mean, to start with, Satyam stock was down by about 17 percent. And the stock has generally dipped by several percentage points. So that's the immediate reaction. I think what many analysts are really concerned about is the long-term fallout. We're still in the midst of a global credit crunch. Indian economy has suffered because many foreign investors have pulled out their money. There was some hope here that now with some investors in the United States and in other countries looking at making some quick gains in emerging markets like India, they might be tempted to put their money back in. And the fear here is that with this kind of disclosure, many investors would wonder whether this is a wise place for their money.
MULLINS: All right. The BBC's Sanjoy Majumder in Delhi. Thank you very much.
MAJUMDER: Thank you.
MULLINS: And by the way, you could be forgiven for thinking that a company named Satyam would never engage in fraud. “Satyam†is a word from the Sanskrit language; it means “truthâ€.
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