Bernie Madoff and Ramalinga Raju: A tale of two frauds

Bernie Madoff and Ramalinga Raju: A tale of two frauds

During the last budget debate, one of the justifications for a 6.8 per cent fiscal deficit was that the US and many other western countries were running much higher fiscal deficits. On the first anniversary of the biggest corporate crimes in India and the US, it’s time to compare the action taken by the law enforcement agencies of either country and draw some lessons.

The Bernie Madoff case in the US and the scandal at Satyam Computers in our country offers a glimpse into the manner in which the judiciary of respective countries have so far acted in dealing with these scams. Bernie Madoff ran the biggest Ponzi scheme ever known to mankind. Ramalinga Raju ran a software empire that was producing fake invoices and booking false revenue to show record profits and cash balances quarter after quarter. Both frauds went on for a long period of time undetected by regulators. Both enriched themselves and their families by billions of dollars before confessing to criminal behaviour.

Madoff revealed in Dec 2008 that he was running a Ponzi scheme. Ramalinga Raju unsuccessfully attempted to merge his software company with a family-owned infrastructure company, before confessing to inflated profits and fictitious cash balances in January 2009.

As the two scandals have completed a year, this is what we see: While prosecution in the US scandal is over, the trail in the Indian scandal is yet to begin. Bernie Madoff got his due process more than nine months ago. He was out on bail for a couple of months before pleading guilty to his crime and is serving a life sentence in a prison near North Carolina. His family has been stripped of the ill-gotten wealth. Many of his family and colleagues are under the radar of prosecutors and can soon be expected to serve time.

Madoff’s auditor who has been charged with securities fraud for false regulatory filings and improper audit of financial statements is expected to get a lighter sentence for co-operation. There was excellent co-ordination between various law enforcement agencies.

Since his confession, Ramalinga Raju, his brother Rama Raju and a few of his colleagues are in prison and are yet to be charged for the crime. The auditors who have steadfastly maintained their innocence are also languishing in jail. The independent directors who had abdicated their fiduciary duty to shareholders by failing to review the financials and scrutinise management actions were presumed innocent and deemed blemish less by the investigators.

Initial investigation of the scam was handled by the Andhra Pradesh police’s crime branch. Later five Central government agencies — CBI, SFIO, ROC, SEBI, IT department and the professional regulatory agency, the ICAI investigated the scam. According to recent media reports, the CBI has produced a 30,000 page report on the modus operandi of Raju brothers. SEBI, which had to go to the Supreme Court to obtain permission to question the Raju brothers is yet to make its report public as with the other investigating agencies who have filed either a preliminary report or an interim report with the Government of India.


While Madoff investors received some sympathy from the US federal government and investing community, no special treatment was proposed to compensate the victims of the scam. In the Satyam case, bowing to the loud demands of the IT industry and corporate leaders, the Centre stepped in by replacing the board of directors with its own nominees that took over the affairs of the company. The government nominees on the board of Satyam secured necessary waivers from various ministries and found a buyer with deep pockets before the implosion of the company.

With the incredible revival of Mahindra Satyam as it is now called, more than 40,000 jobs have been saved and it will soon likely take back its lost glory. The stock price has more than doubled and given a year’s time would be back to its pre-scam levels. This will embolden Raju’s lawyer to plead for leniency from the judge as and when the trial occurs.

Given the fact that the trial is yet to start and might go on for a considerable period of time, it is quite possible that the Raju brothers could walk away with an easy sentence.
Ramalinga Raju is emblematic of what happens to business leaders who wilfully indulge in corporate fraud. Their criminal actions invariably go unpunished. As soon as a fraud is discovered various government agencies get into the investigating act but punishing them has proven to be elusive.

Our country has a poor record of punishing white collar criminals while the West, especially the US, has successfully prosecuted many of its corporate criminals. Michael Milken and Ivan Boesky served long sentences for securities fraud in the late 80s. John Rigas, Jeffry Skilling and Bernie Ebbers have been dealt with a 25-year sentence for accounting fraud, the auditing firm Arthur Anderson collapsed for its role in certifying the books of Enron and Bernie Madoff has already been given a life sentence. It’s time to imitate the success of West in pursuit of corporate criminals and Satyam Computer founders could be a good start.

Will the perpetrators of the biggest corporate fraud in India be punished in a way that fits the crime? Only time will tell.

The writer is secretary, policy affairs, Karnataka State JD(S). The views are his personal.