The founder and chairman of Indian outsourcer Satyam Computer Services, B Ramalinga Raju has resigned after admitting the company's profits have been falsely inflated for several years, leading to a $1 billion hole in the balance sheet.
One of India's biggest IT firms, Satyam employs around 53,000 and counts Citi, Merrill Lynch and Emirates Bank among its clients.
In his resignation letter to the board, Raju says that the firm's balance sheet, as of 30 September 2008, has a hole of around $1 billion. The sheet of Rs5361 crore includes "non-existent" cash and bank balances of Rs5040 crore.
Revenue for the second quarter was actually Rs2112 crore, not as stated Rs2700 crore. Operating margin was just three per cent of revenue, not the reported 24%.
The gap in the balance sheet "has arisen purely on account of inflated profits over a period of last several years".
Raju says a minor gap between actual operating profits and those reflected in the company's accounts grew over the years before reaching "unmanageable proportions".
The company's recent aborted move to buy the Maytas construction firms - partly owned by Raju and his family - was the last attempt to fill the "fictitious assets" with real ones.
"It was like riding a tiger, not knowing how to get off without being eaten," says Raju.
"I am now prepared to subject myself to the laws of the land and face consequences thereof," he adds.
The chairman's brother B. Rama Raju has also quit as Satyam's managing director. Ramalinga Raju says no other directors had any knowledge of the dealings and insists that neither he, nor his brother benefited financially from the inflated results.
Interim CEO Ram Mynampati says: "We are obviously shocked by the contents of the letter...We have gathered together at Hyderabad to strategise the way forward in light of this startling revelation."
In his resignation letter Raju had said Merrill Lynch "can be entrusted with quickly exploring some merger opportunities".
Merrill has since terminated its role as an advisor to the firm on strategic options after learning of the "material accounting irregularities".
The resignation letter provoked a scramble to offload the stock, leading to a 77% collapse in the company's share price.
Satyam has had a tough few months, with the World Bank confirming in December it has excluded the vendor from contracts for eight years "for providing improper benefits to Bank staff and for failing to maintain documentation to support fees charged for its subcontractors".
The firm has also been pursued by mobile payments firm Upaid for $1 billion in damages against allegations of fraud, forgery and breach of contract.