Independent research group predicted India’s Enron

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New York – Riedel Research Group, an independent equity research firm covering the emerging markets, foresaw the collapse of India’s IT giant Satyam. Some weeks after Riedel Research Group recommended its clients to “sell at any cost,” Satyam fell 78%. The collapse came on the heels of the company’s founder, Ramalinga Raju, telling the board that more than 50 billion rupees, out of the 53 billion reported, do not exist.

“We identified some red flags in December and recommended our clients to sell at any cost,” said David Riedel, president of Riedel Research in an interview for Bloomberg TV yesterday. “We saw the smoke. We did not know that this was the fire, but we knew there was fire somewhere.”

Similarly to Enron’s case, Satyam’s collapse was caused by the management’s false assessment of available revenue, which misled clients and investors. Mr. Raju confessed in a letter to the board that he falsified earnings and assets for several years in an effort to avoid a takeover. The confession prompted investors like Goldman Sachs, Citigroup, HSBC, and Credit Suisse to suspend their coverage of Satyam. The company employs more than 53,000 people in offices around the world.

Riedel Research Group covered Satyam’s failed attempt to acquire two related companies, a transaction that allowed the research firm to identify the management’s struggle to keep the company afloat. According to Mr. Riedel interview on Bloomberg TV, the Riedel Research Group will continue to watch closely the other firms affiliated with Satyam in order to help its clients make investment decisions.

RRG employs over 30 analysts based in 15 countries around the world. The firm provides independent equity research and recommendations on more than 300 companies in the emerging markets.

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