Deepak Shenoy

Three Investor Lessons from the Satyam Scandal

This is rich. That SAY's scandal was "simple" and Enron, Worldcom or Tyco "complex" is beyond believable. When it did come out, Enron's scam seemed simple; after all, what they did was funnel money to Fastow's company, and hide the real risk. Sure some of it was in financial statements; but that was just the tip of the iceberg, and only helpful insiders cracked it for us.

Tyco's scandal was probably the closest. Mangement pilfered cash, and they overstated cash flow.

Satyam's hiding of the cash flow through "creative" measures is probably going to turn out to be complex as well, later. And this kind of fraud, it will be found, is likely to happen in the US as well.

Having said that the disclosure norms in India are not exhaustive or specific enough, and companies still need not disclose balance sheets and cash flow statements at the end of each quarter. While the US SOX is nowhere close to successful, but we definitely need more rigorous norms, peer audits, and verification procedures in India.

But the thing is: Such frauds will happen all over the world. After this bank rescue moral hazard, it will only get worse; we've seen excesses already in AIG, and we're likely to see more conventional filching by the newly crowned "bank holding companies", which by definition includes everyone except you and me.

I wouldn't adopt a holier-than-thou attitude on regulation; definitely nt after the recent past. That there is a problem is accepted, that there won't be a similar one in the US is just laughable. Though if anything I must admire the massive amount of reliable data available in the US on everything not in corp balance sheets - CDS prices, real estate, construction, jobs, and even architectural billing! At least that gives you a way to assess an industry.