Deloitte does a Satyam with Jagan's media empire

When Satyam Ramalinga Raju found a compromising auditor in PWC, Jagati Publications Limited, the media house owned by Kadapa MP Y S Jagan Mohan Reddy, utilised Deloitte to overrate his company’s worth for better positioning on the stock market.

Deloitte manipulated the valuation of Jagati Publications up to Rs 3,500 crore instead of an actual valuation of Rs 2,500 crore and even predated the valuation to enable Jagan’s company sell equity stakes at high premiums of over Rs 350 per scrip. P N Sudarshan, senior director of Deloitte Touche Tohmatsu India Private Limited, on Wednesday made a startling confession to the Central Bureau of Investigation (CBI) that Jagan’s clout and political pressure drove the company to compromise on credibility and concede to their demands.

Sudarshan disclosed in a recorded statement under Section 164 of CrPC before a magistrate that Deloitte was pressured by Vijay Sai Reddy, the auditor of Jagati Publications Limited, to overvalue the firm.

He claimed that on compulsion they gave the assessment with a predate of November 2007 as against the actual date of April, 2008.

According to him, Vijay Sai Reddy informed them that the report was for internal audit purposes only, but was later made public and shown to prospective Jagati investors who were made to buy the stakes at high premiums.

The CBI recorded Sudarshan’s statement as witness the same way it recorded the statement of Congress leader Varadarajulu Reddy’s son, Konda Reddy, in the Obulapuram Mining Corporation case.

The investigating agency has already named Vijay Sai Reddy, vice-chairman and former auditor of Jagati Publications, as an accused.

The investors, representatives from several corporates like Hetero Drugs who were summoned by the CBI, have informed agency sleuths that they had made the investments based on the audit report of Deloitte.

 “We gave the valuation report in 2007 relying on the documents provided by auditor Vijay Sai Reddy and did not verify the details,” said Sudarshan. Deloitte spokesman Malika Kumar said that the company extended full cooperation and assistance for the investigation.

Another auditing firm, Jagadisan and Company of Chennai, valued the three firms at Rs 410 crore, including Jagati at Rs 196 crore, Indira TV at Rs 185 crore, and Janani Infra at Rs 29 crore even before the media house floated by Jagan had even opened up business.

Deloitte claims Jagan’s auditor Vijay Sai Reddy had violated the normal terms made with them not to use it for market purposes. It is a clear violation of customer-auditor confidentiality agreement. 

But, Deloitte had not reported any such agreement to either the Sebi or other regulators when the Jagati Publications had used the document to induce investors.
When asked why  the same ethical standards were not observed in respect of  public interest, a Deloitte  representative said they were promised by Jagati that they would not publicly quote it.

As a result many investors who were granted land under the special economic zone (SEZ) in the state were made to buy shares of a company with a market value of Rs 30 only at an exorbitant price of Rs 350 per scrip. Sai Reddy may be arrested soon.
The Enforcement Directorate (ED) on Thursday issued summons in connection with the money laundering case to  Jagan. The ED has asked him to send an authorised person who will answer questions on his behalf at its New Delhi headquarters on or before November 28.