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Thursday, January 22, 2009

Satyam Bank Documents at Issue

As posted by: Wall Street Journal

Satyam Computer Services Ltd., the Indian outsourcer embroiled in a fraud scandal, used forged documents from at least four major banks to claim a cash balance in excess of $1 billion, according to a person close to the investigation.

Investigators have sent Satyam's account-balance statements and letters of confirmation of account balances to officials at HSBC Holdings PLC of the U.K., Citigroup Inc. of the U.S., and HDFC Bank and ICICI Bank Ltd. of India. Based on the banks' reviews, investigators have determined that the documents were forgeries, according to the person close to the investigation. Spokesmen for all four banks declined to comment.

The documents offer a further glimpse into how Satyam founder and former Chairman B. Ramalinga Raju executed a fraud that inflated the company's balance sheet over several years, according to a confession he wrote to Satyam's board earlier this month. Since then, investigators have launched a probe into the company's dealings to determine the full extent of the deception.

Mr. Raju and his brother, B. Rama Raju, Satyam's former managing director, have been arrested in Hyderabad, the capital of the southern state of Andhra Pradesh, on complaints of cheating, forgery and breach of trust. A bail hearing for the two is expected on Jan. 22. The Raju brothers' lawyer, S. Bharat Kumar, declined to comment Monday.

The Raju brothers have financial stakes in two infrastructure companies, Maytas Infra Ltd. and Maytas Properties Ltd. The Indian government said Monday it will seize the books of both Maytas companies as part of the probe into Satyam because of a possible connection.

B. Ramalinga Raju's confession to cooking the books at Satyam Computer Services comes as a shocking disappointment to young Indian tech workers who saw him as a role-model. WSJ's Divya Gupta reports.

"We have ordered extension of [the probe by] the Serious Fraud Investigation Office into the two companies as the initial investigation has showed a nexus," P.C. Gupta, minister of corporate affairs, told reporters. "To uncover the facts relating to the events in Satyam, it is necessary to obtain information, records, books and papers from the two companies."

Spokesmen for both Maytas companies had no immediate comment.

Meanwhile, Maytas Infra said Chief Executive P.K. Madhav has resigned, effective Jan. 14, because he needs to spend time addressing legal issues in an unrelated case. A Maytas spokesman said Mr. Madhav was unavailable for comment.