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A stunned India Inc, rattled investors and the government were left to pick through the debris to salvage what is left of Satyam Computer Services after its founder and chairman admitted to committing the country’s biggest financial fraud.

Securities regulator Sebi has initiated a probe, US investors are considering a class action suit while the ministry of company affairs will refer the case to the Serious Fraud Investigation Office. Foreign institutional investors dumped the stock, some like Aberdeen and Swiss Finance exited completely, and the ADR crashed over 90% in early trades. In the local market, the scrip fell nearly 78% to close at Rs 39.95. Meanwhile, joint commissioner (crime) of the Mumbai police said the Economic Offences Wing would conduct a preliminary enquiry into the allegations made by a city-based investors’ body.

Even as various agencies started investigations, there were rumours that B Ramalinga Raju, the disgraced founder and chairman of Satyam, had fled India. A company spokeswoman said she had no knowledge of his whereabouts. A top company official said Mr Raju spoke over phone to key executives during the day but his location was not known. Andhra chief minister YSR Reddy has written to the prime minister, requesting a caretaker panel comprising Azim Premji and NR Narayana Murthy to manage the company.

While the Andhra Pradesh government had earlier said it would approach the Central Bureau of Investigation, it is yet to file a complaint.

Mr Raju, who built India’s fourth-largest software firm over 21 years, resigned from his post after confessing that sales and profits at the NYSElisted firm were “inflated”, that it did not actually have bulk of the Rs 5,300-crore cash it said it did, that liabilities totalling Rs 1,230 crore were understated, and that it is owed less money than earlier stated—amounting to a hole of at least Rs 7,000 crore in the company’s books. This is the first time in India’s corporate history that the boss of a major company has admitted to having committed fraud. (See inside for the transcript of Mr Raju’s letter).

It is not clear whether the software services company has enough cash to be able to run its operations for even a month.

The scandal has also brought into sharp focus the role of the auditor—Pricewaterhouse-Coopers—raising serious doubts on whether it was complicit in perpetrating a fraud comparable to the accounting scandal at the erstwhile Enron in the US. PwC has taken temporary shelter under the roof of client confidentiality, saying it is now examining the contents of the statement made by Mr Raju. Jittery institutional investors, who together owned nearly two-thirds of the company, started talks to co-ordinate their actions to try and make the best of a bad bargain. Finding a strategic investor and installing a new management team were among the steps under active consideration.

“But this process may take a while till the dust settles. We are also exploring the option of taking legal action (filing a suit) against the company and the statutory auditors,” said a top institutional investor who wished not to be named. Corporate India, for its part, was furious that Mr Raju and Satyam’s actions could result in all of them, particularly tech firms, being tarnished with the same brush. Sebi and the government ordered an investigation into the dealings at Satyam, and Sebi chairman CB Bhave dubbed the scandal “horrifying”.

The regulator is expected to send a team to Hyderabad to inspect Satyam’s books of accounts. The ministry of company affairs has asked the Registrar of Companies (RoC) in Andhra Pradesh to send a new report by January 14. But it remains a mystery why a previous report by the RoC on Satyam has been lying with the government for more than a week. Was there even inkling in the findings of what was to come in Mr Raju’s admission? “What started as a marginal gap between actual operating profits and those reflected in the books of accounts continued to grow over the years and attained unmanageable proportions as the size of operations grew. The aborted Maytas acquisition deal was the last attempt to fill the fictitious assets with the real one. But neither me nor the managing director have benefited in financial terms on account of the inflated results,” Satyam’s top boss wrote in a letter to Sebi and the stock exchanges.

His younger brother and managing director of Satyam, Rama Raju, has also stepped down. Ram Mynampati, an executive-director who has been named the interim CEO, tried to reassure the over 50,000 staff of Satyam that the immediate priority will be to protect and secure their future. But if the scam triggers exits by the 600-plus customers of the company, that would be put in jeopardy. Investment banker DSP Merrill Lynch, which was given the mandate to explore strategic options for Satyam before the latest scandal broke, has snapped ties with the firm. A board meeting will take place as scheduled on January 10, Mr Mynampati said. A “task force” of key employees will try to chart a new course and a re-statement of accounts is also on the cards. Shareholders were left in the lurch as the Satyam scrip dropped by 77.6% to close at Rs 39.95 on BSE. NSE has announced that Satyam will be removed from the Nifty 50 from January 12. Andhra Pradesh chief minister YS Rajasekhara Reddy ordered a police probe to determine if there had been any criminal culpability. “Mr Raju’s disclosure can also lead to criminal action against him in the US as the company is listed on NYSE,” said an IT analyst. The Satyam story began unravelling on December 16, when its board approved the company’s proposal to spend $1.6 billion to buy Maytas Infra and Maytas Properties—firms run by Mr Raju’s. But the proposed deal never went through in the face of investor opposition.

Four independent directors, including Indian School of Business dean Mendu Rammohan Rao, who chaired the controversial board meet, quit after investors questioned their judgement in endorsing a deal with a related party. But none of the independent directors had any knowledge of the accounting fraud and most of the business unit heads and senior executives were also kept in the dark, said Mr Raju. The name of Satyam chief financial officer V Srinivas, however, does not figure in the list. Early this month, the company had admitted that the promoters had pledged all their stocks held in a corporate entity, SRSR Holdings, to institutional lenders to buy land and real estate. According to a Satyam statement, Mr Raju and his family owned only a 3.6% stake in company following the sale of stocks pledged to the lenders. Maytas Infra and Maytas Properties are also seen headed for trouble. They are understood to be facing severe working capital crunch and could be dropped from several large projects, including the Hyderabad Metro Rail contract.

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