PHILADELPHIA (CN) – An India-based tech company exaggerated its assets by more than $1 billion and cost investors more than $60 million when the ruse came out, according to a federal complaint. Aberdeen Claims Administration says the founders of Saytam Computer Services “pillage(d)” the company for 8 years in a scheme that involved “thousands of forged invoices and contracts, dual sets of account books, phony bank statements,” and false filings with the SEC.
At its peak, Satyam provided IT services to more than one-third of the companies on the Fortune 500 list, had nearly $2.5 billion market capitalization and employed “tens of thousands,” according to the trustee’s complaint filed on behalf of 19 investors.
After Saytam’s founder, B. Ramalinga Raju, admitted the massive fraud in a resignation letter, the company’s share price dropped by 87 percent, according to the complaint.
But by then, Aberdeen says, Raju and his family had sold off 90 percent of their stock for a $65 million profit.
Aberdeen sued Saytam and its executives, a puppet company called Maytas, which is “Saytam” spelled backward, and auditors at PricewaterhouseCoopers.
Saytam paid audit fees to Pricewaterhouse that were up to 667 percent greater than those that peer companies paid their auditors, according to the complaint.
The investors say the British-based accounting firm turned a blind eye to the Rajus’ fraud, ignoring the actual financial figures while certifying false financial statements.
Aberdeen also sued the two auditors who dealt with Saytam directly. S. Gopalakrishnan Srinival Talluri received hundreds of thousands of dollars for undisclosed “additional services,” according to the complaint.
Saytam ran the scam by siphoning cash through “a maze” of more than 300 companies, submitting more than 7,000 phony invoices and bribing employees to cover up the paper trail, according to the complaint.
In Raju’s confession letter, he said that concealing the scheme was “like riding a tiger, not knowing how to get off without getting eaten,” the complaint states.
To give the illusion that Saytam was doing hundreds of millions of dollars in business, the company gave $375 million to affiliates in a series of off-the-books loans based on “worthless collateral,” according to the complaint.
Investors say Saytam used the companies as conduits to buy 8,000 acres of land and to funnel the money back so that Saytam could meet operating expenses. Saytam employees destroyed evidence and created a fake paper trail in exchange for stock options, according to the complaint.
The investors seek punitive damages for securities fraud and negligence. They are represented by Keith Dutill with Stradley, Ronon, Stevens & Young.