Parekh to Run Satyam as Chairman Held in Fraud Probe

By M.C. Govardhana Rangan and Gaurav Singh

Jan. 11 (Bloomberg) -- Deepak Parekh, chairman of Housing Development Finance Corp., and two directors were appointed to run Satyam Computer Services Ltd. as India detained the software company’s founder in the nation’s biggest corporate fraud.

“First we need to go and assess the magnitude of the issue,” Parekh told Bloomberg in a telephone interview. “Then we have to work on the re-statement of accounts.”

Kiran Karnik, ex-president of the nation’s software industry lobby group, and former regulator C. Achuthan were also appointed to Satyam’s board, Corporate Affairs Minister Prem Chand Gupta said in New Delhi today. The previous directors were sacked on Jan. 9 when chairman Ramalinga Raju was arrested.

The new management will work to retain Hyderabad-based Satyam’s customers including Telstra Corp. and safeguard 53,000 jobs. Satyam was sued by investors in at least three class-action lawsuits in the U.S. following the plunge in its shares after Raju said he falsified accounts for several years.

“The board’s first priority will clearly be to restore the company’s credibility, customer confidence and employee morale, as also to safeguard the interests of investors and other stakeholders,” Gupta said. “I’m confident these persons will be able to give the kind of leadership to the company which is required.”

Forgery, Conspiracy

A Hyderabad magistrate yesterday remanded Raju, Satyam’s founder, and his brother Rama to judicial custody until Jan. 23. Satyam Chief Financial Officer Srinivas Vadlamani was questioned by police yesterday and subsequently arrested, Inspector General V.S.K. Kaumudi said.

The brothers were detained on charges including forgery, breach of trust and criminal conspiracy, Kaumudi said on Jan. 9. Officials have seized documents and the nation’s accounting body is examining auditor PricewaterhouseCoopers LLC’s local unit, Gupta said on Jan. 9.

Raju’s admission on Jan. 7 that he’d fabricated $1 billion in cash and assets on Satyam’s books sparked a 95 percent, two- day plunge in the company’s stock that wiped out $2.2 billion of investor wealth. The company is now worth $332 million after the Bombay Stock Exchange removed Satyam from its Sensitive Index and the National Stock Exchange dropped the stock from the Nifty.

Satyam shareholder Lazard Asset Management LLC said it asked for information from the government about developments in the investigation.

“As a large shareholder, we would like to be informed on all matters being considered regarding Satyam,” Lazard Asset said in a letter to the Ministry of Corporate Affairs, according to a statement today on BusinessWire. It said reports that it has sought a seat on the Satyam board are incorrect.

Increased Stake

Lazard Asset increased its stake in Satyam on Jan. 7 to 5.3 percent from 4.79 percent, while Aberdeen Asset Managers Ltd. and Fidelity Management & Research Co. sold their holdings. Lazard holds shares on behalf of clients and the acquisition of an additional stake wasn’t aimed at getting control of the company, it said in a filing yesterday.

Satyam’s American depositary receipts, each representing two ordinary Satyam shares, fell $8.42, or 90 percent, to 93 cents before the opening of the New York Stock Exchange on Jan. 7, when trading was halted.

“Shareholders are worried since the government got involved,” P.R. Dilip, managing director at investment advisory firm Impetus Wealth Management Ltd. in Mumbai, said before the three directors were named. “The priority will be to rescue staff and customers, and shareholders are always last in the queue in these kinds of events.”

Parekh said he’d work to restore confidence of Satyam’s employees and clients. Satyam’s board is expected to convene within the next 24 hours in Hyderabad and further appointments may be made later, Gupta said.

Raju’s Fall

The fall of Raju, named Ernst & Young Entrepreneur of the Year in 2007, began three weeks ago when Satyam proposed paying $1.6 billion for Maytas Properties Ltd. and Maytas Infra Ltd., both tied to his family. The plan was scrapped 12 hours later after investors called it a “woeful misuse of cash.” Raju said the sale was designed to plug the hole in Satyam’s balance sheet.

Satyam has offices from the U.S. to the U.K., Brazil and Australia. The company writes software and manages computer systems for clients including ArcelorMittal, the world’s largest steelmaker, and Nissan Motor Co., Japan’s third-biggest carmaker.

Telstra, Australia’s largest telephone company, said Jan. 8 that Satyam’s disclosure will be a factor when it cuts two out of its four major information technology suppliers this year.

“A company without a board is like a headless chicken,” Karnik, former president of the National Association of Software and Service Companies, told Bloomberg yesterday before his appointment. “Satyam needs people with credibility, integrity to retain customers and employees. You also need legal protection for those who come on board from future lawsuits.”

To contact the reporters on this story: Gaurav Singh in New Delhi at gsingh31@bloomberg.net; M.C. Govardhana Rangan in Mumbai at grangan@bloomberg.net.