News Desk
State Farm Dumps Satyam
Insurer is Satyam’s first known loss
Jan. 21, 2009 04:30 AM
State Farm Insurance Company, the Fortune 500 giant, has canceled its long-standing contract with Satyam Computer Service Ltd, the disgraced Indian outsourcer whose CEO confessed days ago to cooking the books.
His admission only came once he realized the fraud was bound to be found out and after he had tried every avenue of escape.
The American insurer, believed to be one of Satyam's top 10 customers, is its first known loss. State Farm said it bolted because it was unsure Satyam had a future.
Satyam claims "well over 90% of our clients have committed to continuing." It remains to be seen whether that statement proves to be true. The company is currently trying to round up enough money to survive, pushing to get the $347 million the Indian government figures it's owned in receivables and negotiating with banks for operating capital.
The government itself has refused to bail it out.
Satyam's founder, Ramalinga Raju, admitted to inflating the publicly held company's profits for years and making up the billion dollars it supposedly had in the bank.
Raju, his brother, Satyam's managing director, and its CFO are currently cooling their heels in jail answering questions.
If Satyam fails, a third of the Fortune 500, among others, face serious exposure especially if they contracted out mission-critical operations to the rogue company. They can't just wave a magic wand and move them elsewhere, even in-house. Unfortunately much depends on Satyam's record keeping and documentation. It could be a nightmare and the wisdom of outsourcing, for all its cost-savings charms, questioned.
Meanwhile, Satyam's fired ex-auditor PricewaterhouseCoopers finally had something to say. Coming late to the party, it claimed it relied on information from Satyam's management for the last eight years and as a result its assessments of the company "may be rendered inaccurate and unreliable." Legal action against it and individual partners is likely.
Satyam, which is also looking for a new CEO and CFO, has hired Deloitte and KPMG to put its books in order.
The value of the State Farm contract is unknown. It could reportedly run to $50 million. It is also unclear what will happen to the 900 Satyam employees dedicated to the State Farm account, including the 400 working in the US on H1-B and L1 visas.
Meanwhile, Satyam has denied that Australia's telecommunications mainstay Telstra has also cut the cord.
About Maureen O'GaraMaureen O'Gara the most read technology reporter for the past 20 years, is the Cloud Computing and Virtualization News Desk editor of SYS-CON Media. She is the publisher of famous "Billygrams" and the editor-in-chief of "Client/Server News" for more than a decade. One of the most respected technology reporters in the business, Maureen can be reached by email at maureen(at)sys-con.com or paperboy(at)g2news.com, and by phone at 516 759-7025. Twitter: @MaureenOGara
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