Did Raju confess to lesser crime?

[Kalyan]

Did Raju confess to lesser crime?

    Did Satyam Computers promoter-chairman Ramalinga Raju pick the lesser of two crimes when he decided to confess to India's largestever corporate fraud of Rs 7,136 crore? That question had begun to niggle at a few people on Wednesday itself when the contents of his five-page letter hit the headlines. In the 24 hours since, the question has gained a whole lot more traction.

    Here's why. Raju said that in the second quarter (July-Sept) of 2008, Satyam showed an operating margin of Rs 649 crore (which was 24% of revenue) when it was actually only Rs 61 crore (that's 3% of revenue). This, he indicated, was part of a fudging exercise over years to inflate profits — presumably to keep the stock price up and the magic of Satyam alive. Essentially, what Raju confessed to was creative accounting — showing cash where none was generated and did not exist.
    But, as he kept emphasizing, he did not profit personally from it. Still a crime, but not top of the pops in order of heinousness.
5 US law firms sue Satyam

    Two US-based law firms — Izard Nobel LLP and Vianale & Vianale LLP — have filed class action lawsuits against Satyam Computer on behalf of shareholders of the software services firm's American Depository Receipts. Following them, US based law firms of Dyer & Berens LLP, Sarraf Gentile LLP and Finkelstein Thompson LLP announced on Thursday that they had also initiated an investigation concerning losses suffered by certain investors who purchased the ADRs.

P 17 Raju's confession may not be true.

    Ramalinga Raju, by confessing to manipulating accounts, chose the lesser of two evils. Here's the catch: A 3% margin — which is what Raju said Satyam had actually made — is ridiculously low in the IT industry. Forget Infosys, which made 33% in the same quarter, all IT firms of similar or even smaller size make between 20% and 30%. There's no way Satyam, which services 185 Fortune 500 firms, could have such a low profit margin, said every analyst we spoke to. What's more, even people in Satyam don't believe Raju. TOI, in its Thursday edition, quoted a Satyam staffer saying, "His letter implies that we worked at a margin of 3%. That's pure unadulterated crap."

    So, if Satyam was operating on a much higher margin, why would Raju choose to say it was actually much lower? The implication is that more money was coming into the company in the form of higher profit, but it was being siphoned out.
    It's a crime to show money in the books where none existed, which is what Raju said he did. But it's a worse crime to take out money that actually did exist. There's speculation that Raju was doing so in order to invest in other businesses such as real estate, and did intend to put it back in Satyam at some point of time, but possibly got into such a jam that he couldn't replenish the company's coffers.

    The 3% margin question was put to the interim CEO Ram Mynampati at a press conference in Hyderabad on Thursday. He side-stepped the question.