During the 2000s, the technology consulting firm Satyam Computer Services was one of the largest and most successful companies in India. It was listed on both Indian stock exchanges and the New York Stock Exchange achieving a market capitalization of more than 10 billion dollars at its peak in 2006.. Satyam was one of the largest technology companies in India and was benefiting tremendously from the country's rapidly growing I.T Services sector due to its impressive Revenue growth and profitability. Domestic and foreign investors alike were buying the sock Handover fist.

But as it turned out, the facade of success was created by a highly sophisticated and almost decade-long fraud perpetrated by Founder Romulinga Raju and his family. The House of Cards came crumbling down in 2009 when a 1.5 billion dollar hole was exposed in the company's balance sheet. The stock price fell by more than 90 percent, wiping out billions in shareholder value. Founder and Chairman Rommelinga Raju was arrested and sentenced to seven years in prison for masterminding this game.

In this video, we'll take a deep dive into Sodium Computer Services and see how it became the largest fraud in Indian history. Today's video is brought to you by MooMoo the stock brokerage app that goes beyond the ordinary. Are you tired of using a brokerage that falls short on delivering comprehensive, fundamental data? Look no further. MooMoo provides you a wealth of information including historical Revenue net profit and free cash flow for any stock you want to explore.

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That's right, with MooMoo, you can earn up to 17 free stocks along with a 100 cash reward, all subject to terms and conditions. If you want to take your investing experience to the next level, click the link in the description below. Foreign had three major business segments: Business process Outsourcing ID Consulting and software Development Business Process Outsourcing Was a booming business in India during the 2000s and remains an important industry for the country today. Before the internet, large companies especially Banks and accounting firms had to hire tens of thousands of employees to handle all the paperwork for every mortgage application financial transaction Etc Because these records were primarily done on paper, these clerical employees needed to be located near the company's front office location such as Bank branches for banks in the U.S and other developed countries.

This was a massive expense Because Wagers were relatively high With the Internet, these processes could be outsourced to developing countries where wages were much lower. India Quickly became the most popular choice due to its large population of educated and English-speaking workers. Sodium was one of the largest Indian companies involved in this booming industry. The second segment is IT consulting.

Whenever a corporation starts using a new software, especially large income applicated software such as Enterprise Resource Planning systems, the employees need significant training to learn how to use it. Companies would hire Sodium for consulting services to strategize on how to implement new software in the most efficient way possible, as well as training their employees to use it. Most of stadiums Consultants work remotely from India again, giving them a cost advantage and finally, they provide software developments and maintenance services. Satyam would develop and maintain custom made software for Niche purposes.

For example, in 2008, Satyam was a lead software partner for both the FIFA World Cup and the Beijing Olympics. They created the websites for both events, including a system to update game scores live by all accounts, Stadium was a real company. They had tens of thousands of employees, provided valuable services, and legitimately generated billions of dollars in Revenue. Nobody suspected anything was fraudulent, so as their revenue and profit surged, so too to their share price, making them one of the most valuable companies in India.

In fact, Sodium was so well respected that in 2008 they were given the Golden Peacock Award, which is one of the most prestigious Awards in the Indian business. Community The award specifically told the company's excellence in corporate governance. Within less than a year, the fact that Sodium was given any award for corporate governance would become laughable. Things started to get weird in December of 2008 when Sodium unexpectedly announced that they would be acquiring two real estate firms, Mitos Properties and Mitos infrastructure.

Mitosis is a strange name for a company, as it is not a real word in English Hindi or any other language for that matter. if you look closely, my toss is an anti-gram of Sodium. it's Sodium spelled backwards. As it turns out, both Mike house companies were founded by Rama Raju the brother of Sodium founder Romalinka.

Raju The Mitos companies own hundreds of millions of dollars worth of land and other real estate in India If you're thinking it's odd that an I.T consulting firm would want to acquire a real estate holding company, you're not alone. Investors were immediately suspicious of the deal and sent the company's share price down by 55. The day it was announced. Facing the threat of investor lawsuits, Sodium almost immediately called off the ill-conceived acquisition.

This raises the obvious question: Why did Ramalingo Raju want to acquire his brothers real estate companies? Thank you! Well, Sodium was a real company. It was not nearly as profitable as his financial statement suggested. Sodium used in accounting and payroll software called on time Raju secretly planted a bug in the system which created a super user role using his super user account. Raju was able to create fake invoices for services that had never been provided to generate Revenue that never existed.

Additionally, he and his brother conspired to create a web of more than 300 shell companies that would secretly borrow money from Saigam's accounts. Even more egregiously, they created 6 000 salary accounts for employees that did not exist. The money that was used to pay these fake employees was siphoned into the pockets of the Raju family. Finally, the cash that they raised from their IPO on the New York Stock Exchange never made it into Sodium's bank accounts.

It was instead siphoned to the Raju family. They used this money to found Maitas Properties and Mitos infrastructure in Raju's brother's name. According to: Raju, the fraud started off small, but the artificially strong results on their financial statements created overly optimistic analyst expectations, which he had to continue creating fake revenues and profits. To me, he said it was like riding a tiger not knowing when to get off without being eaten.

Over the years, he tried to increase the actual revenue of the company to close the gap between the company's real operations and those depicted in their financial statements, but all those efforts ended in Failure because a large portion of the company's Revenue was fake. The difference between the cash reported on their balance sheet and what they actually had in their bank account was growing and by the end of 2008, they were on the verge of running out of the proposed Mitos acquisition was a final Hail Mary attempt to solve this problem. Maitas had real property assets. The idea was that Sidon would buy Mitas's properties using the fade cache as payment.

This would fill up the hole in the balance sheet and make things right once and for all. When the acquisition failed, Raju came to the realization that his house of Cards had come crumbling down, so he took full responsibility for his actions. at least he pretended to. He sent a five-page letter to the board of Directors admitting that of the 53 billion rupees of cash on the balance sheet, 50 billion, a shocking 95 percent did not exist.

Additionally, they had about 17 billion of liabilities that were not stated on their financial statements. In total, the whole in Sodium's balance sheet was 70 billion rupees, equivalent to about 1.5 billion dollars at the time. In the most recent quarter, their revenue was overstated by 27 percent. They reported an operating profit margin of 24, but in reality the margin was just 3 percent.

While he did take responsibility for manipulating the raise financial statements, he didn't fully come clean. He said neither me nor the managing director who was his brother took even one rupee or dollar from the company and have not benefited in financial terms on account of the inflated results. We now know that this was not true as they siphoned off hundreds of millions of dollars from the company and to find his brothers real estate companies. He also claims that the company was forced to carry additional resources and assets to justify the revenue, which significantly increased costs.

He's implying that Sodium had to hire unnecessary workers to be consistent with the inflated Revenue. These unnecessary workers increased the cost and reduced the company's real profitability. Sodium indeed hired 6 000 unnecessary workers. What he failed to mention was that these workers existed only within the rigged payroll software and he siphoned off the salaries himself.

Both Ramalinga and Rama were arrested and both were sentenced to seven years in prison. Foreign was smaller and less profitable than its prior financial statement suggested. It was still a large company and slightly profitable. The stock price initially tanked by more than 90.

Following the revelation of the fraud, the giant Indian conglomerate Mahindra and Mahindra took advantage of the fall in the share price to acquire a majority stake in Sodium. A few months later, the company was rebranded as Mahindra Satyam Mahindra was able to stabilize the business and clean up all the accounting fraud in 2013. Mahindra acquired the remaining portion of Sodium and integrated it into their technology subsidiary Tech Mahindra which continues to operate to this day. Tech Mahindra has been a huge success and currently has a market cap of 1 trillion rupees, equivalent to about 12 billion dollars.

The legacy of Sodium also lives on through the massive I.T consulting firm Cognizant Technologies which currently has a market cap over 30 billion dollars. Cognizant was formed as a joint venture between Sadio and an American company called Dun and Bradstreiton. It was spun off as an independent company in 1994.. the fact that the ram evidence of Sodium Computer Services live onto this day in the form of two highly successful companies shows that despite his fraud, Ramalinga Raju was a brilliant businessman capable of creating valuable businesses.

Had it not been for his fraud, he would likely be remembered as one of India's most brilliant entrepreneurs. But selfish Creed proved too seductive and his name is now written in the history books as one of India's greatest scammers. All right guys, that wraps it up for this video. What do you think about Sodium? Computer Services Let us know in the comments section below.

As always, thank you so much for watching and we'll see you in the next one! Wall Street Millennial Signing out.