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INDIA: Bail Opposed for Raju

by Eric Bellman and Jackie RangeWall Street Journal
January 28th, 2009

Prosecutors pursuing the fraud at Satyam Computer Services Ltd. said Tuesday the Indian technology outsourcer's founder, B. Ramalinga Raju, should be denied bail because he could slow the investigation if released.

Their assertions came after an employee of a company managed by Mr. Raju's family told police that he had been instructed to hide documents connected to land purchases by the Raju family, according to prosecutors and a court document reviewed by The Wall Street Journal.

[Satyam B. Ramalinga Raju]

B. Ramalinga Raju

Police in the southern Indian city of Hyderabad, where Satyam is based, are investigating whether large amounts of funds were siphoned from Satyam to Raju family companies that invested in property. The investigation began after Mr. Raju earlier this month wrote to Satyam's board admitting that he had inflated the company's financial results for several years, including the creation of a fictitious bank balance in excess of $1 billion. He resigned as Satyam's chairman at the same time.

S. Bharat Kumar, a defense lawyer for the Raju family, rejected the claim made by prosecutors that Mr. Raju might try to tamper with evidence or intimidate witnesses. Mr. Raju is being held on charges of cheating, breach of trust and forgery. Mr. Kumar pointed out that Mr. Raju turned himself in, and wasn't trying to block the investigation. Mr. Raju would cooperate fully with authorities if granted bail, he said. He also rejected suggestions that funds were diverted for land purchases.

The court is expected to decide Wednesday on whether Mr. Raju is released on bail.

Over the weekend, D.V. Gopala Krishnam Raju, general manager of SRSR Advisory Services, an investment company run by B. Ramalinga Raju's younger brother, was arrested and charged with involvement in the fraud and with trying to tamper with evidence. According to court documents, the general manager told interrogators that he was asked to hide documents connected to the Raju family's land holdings. It isn't clear if D.V. Gopala Krishnam Raju is related to B. Ramalinga Raju.

Over the past two weeks, B. Ramalinga Raju's brother, B. Suryanarayana Raju, director of SRSR Advisory, "was instructing me in a hurried manner to shift all original documents to various places to conceal them from police," D.V. Gopala Krishnam Raju told police, according to the document.

The general manager took five boxes of documents relating to properties owned by more than 150 companies connected to the Raju family and moved them to new locations around Hyderabad, including apartments, offices, a guest house and a mango farm, according to the document.

Mr. Kumar, whose legal team also represents D.V. Gopala Krishnam Raju and B. Suryanarayana Raju, said his clients hadn't engaged in any evidence tampering or efforts to conceal documents, and that D.V. Gopala Krishnam Raju's statement had been extracted "under coercion."

Separately, two partners of accounting firm Price Waterhouse, who are being held in connection with the accounting scandal at Satyam, have been suspended pending the outcome of the investigation, Price Waterhouse said in a statement Tuesday. Price Waterhouse is an Indian arm of PricewaterhouseCoopers, the international accounting giant.

The partners, S. Gopalakrishnan and Srinivas Talluri, were arrested Saturday by the Indian police on charges of criminal conspiracy and cheating in connection with the fraud investigation. Neither Mr. Gopalakrishnan nor Mr. Talluri could be reached for comment Tuesday. A lawyer for both declined to comment.

"We're not questioning their integrity, or making any judgment on the quality of their professional work," said a PricewaterhouseCoopers spokesman, commenting on the partners' suspension. "They are still part of the firm, they'll still be paid and we'll obviously assess the situation once it's over."

Also Tuesday, Price Waterhouse said Thomas Mathew, the head of audit and accounting for PricewaterhouseCoopers in India, would step down, but remain a partner in the firm. "Mr. Mathew had no connection with the audit of Satyam. In light of the present situation, however, he believes it would be appropriate for him to relinquish his management position," said a Price Waterhouse statement.

Mr. Mathew wasn't available for comment Tuesday, according to a spokesman for the firm.

Meanwhile, Satyam's government-appointed board of directors on Tuesday said it appointed Goldman Sachs and Avendus Capital to advise on strategic options, including a possible sale of the company. It also has completed most of its discussions on the financing needed to meet immediate operational expenses, Satyam said in a statement, adding the company will pay January salaries as scheduled.

The board also reiterated its belief that the company hadn't inflated its employee numbers. Further checks and validations have reinforced the board's belief the earlier reported numbers are correct, it said.

Government prosecutors Thursday told the court that B. Ramalinga Raju used salary payments to 13,000 fictitious employees to siphon millions of dollars from the outsourcer for land purchases. Satyam has only about 40,000 employees, instead of the 53,000 it claims, prosecutors said. Mr. Kumar, the Rajus defense lawyer, said the prosecutors' claims were "absolutely false."

The board has already received several proposals from other companies including private-equity firms, said T.N. Manoharan, a board member. One of the interested parties, Indian construction company Larsen & Toubro Ltd., has a "reasonable chance" of acquiring Satyam after raising its stake in the software exporter to 12%, A.M. Naik, Larsen's chairman and managing director, said in a conference call with analysts.

Satyam's shares closed 21% higher at 47.15 rupees on the Bombay Stock Exchange.

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