Indian Outsourcing Firm Hit By $1B Fraud

Indian police detained the chief financial officer of embattled outsourcing giant Satyam Computers on Saturday, the third executive to enter police custody in the wake of a massive fraud scandal.

Vadlamani Srinivas was detained Saturday night for questioning in the southern city of Hyderabad, said S.S. Yadav, the top police official in Andhra Pradesh state, where Satyam is headquartered. He could be arrested later in the night, police officials said.

On Friday Satyam's founder and former chairman, B. Ramalinga Raju, was arrested for doctoring the company's accounts by $1 billion.

Raju confessed to filling the company's balance sheets with "fictitious" assets and "nonexistent" cash in an extraordinary letter to the company's board on Wednesday.

Raju was arrested along with his brother, former managing director B. Rama Raju, in the southern city of Hyderabad, according to S.S. Yadav, the top police official in Andhra Pradesh state, where the company is headquartered.

Late Friday night the Ministry of Corporate Affairs dissolved Satyam's board, including the company's interim head.

Minister for Corporate Affairs Prem Chand Gupta condemned "the greed and misdeeds of a few persons who were at the helm of affairs of the company."

"The current board of Satyam has failed to do what they were supposed to do," he said in an official statement.

The statement said the central government will appoint 10 people "to function as directors of the company," but no one had been named to the seats.

The Raju brothers were charged Saturday with criminal conspiracy, forgery, criminal breach of trust and falsifying documents, said senior police official S.K. Kumudi. They face up to life in prison, he said.

A local magistrate on Saturday ordered the men held in judicial custody until Jan. 23 while the investigation continues, said Kumar.

They resigned from the company Wednesday.

Satyam Computer Services Ltd. employs 53,000 people - among the 2 million Indians working in the country's booming high-tech industry, which last year brought in an estimated $40 billion. Satyam's clients include a slew of Fortune 500 companies including Nestle, General Electric and Ford Motors.

The Satyam offices were largely empty because it was a weekend, "but otherwise, the business side continues," she said.

"We are continuing our business as normal," Hari Thalapalli, Satyam's director of global marketing and communications, told PTI. "However, there is a movement of uncertainty due to suspension of the board."

In the official statement, Gupta expressed concern that the scandal would bleed beyond Satyam's offices and into the rest of the outsourcing industry, which has been a catalyst of India's economic growth in recent years.

"Satyam case is an aberration," he said. "The credibility of Indian corporate sector in general, and IT sector in particular, should not be allowed to suffer because of this."

Beginning Monday, the Bombay Stock Exchange will replace Satyam with Sun Pharmaceuticals Ltd. on India's benchmark Sensex stock index.

Uttapa denied Indian media reports that Satyam was considering firing 10,000 of its 53,000 employees.

Employee salaries have been paid through December and cleared for the month of January as well, she told The Associated Press.

The scandal comes at a delicate time for India's information technology companies, which are struggling against a global slowdown and waning economic growth at home. India's IT firms derive 40 percent of their global revenues from financial services clients.

Holders of the company's U.S.-listed shares - which have been halted from trading on the New York Stock Exchange while regulators investigate - have filed two class action suits against Satyam, the law firms representing the investors said in separate statements.

The suits filed by Vianale & Vianale LLP and Izard Noble LLP allege Satyam and its top executives issued false and misleading financial statements and violated federal securities laws, the statements on their Web sites said.
By Associated Press Writer Sam Dolnick; AP reporter Omer Farooq contributed from Hyderabad, India