By Sam Dolnick
Associated Press
Sunday, January 11, 2009

NEW DELHI, Jan. 10 -- Indian police arrested the chief financial officer of embattled outsourcing giant Satyam Computer Services on Saturday, the third executive to be charged in a fraud scandal that threatens to roil India's flourishing technology industry.

The arrest of Vadlamani Srinivas came as authorities tried to contain the $1 billion accounting scandal by dissolving the company's board, including the interim head, and announcing plans to name 10 replacements.

The scandal broke Wednesday when Satyam's founder and then-chairman, B. Ramalinga Raju, admitted to filling the company's balance sheets with "fictitious" assets and "nonexistent" cash in an extraordinary letter to the company's board.

The company -- which is fighting for its life -- could no longer conceal the $1 billion hole after a deal intended to save the struggling Satyam was abandoned, Raju said in the letter.

He resigned from Satyam -- Sanskrit for "truth" -- that day, along with his brother, B. Rama Raju, who was managing director. The siblings have been arrested, and they were charged Saturday with criminal conspiracy, forgery, criminal breach of trust and falsifying documents, said senior police official V.S.K. Kaumudi. They face a maximum of life in prison, Kaumudi said.

Srinivas, the third-ranking executive at Satyam, was arrested and charged with the same offenses Saturday night, the police official said.

Satyam, which is headquartered in the southern state of Andhra Pradesh, employs 53,000 people -- among 2 million Indians working in the country's booming high-tech industry, which last year brought in an estimated $40 billion. The company's clients include a slew of Fortune 500 companies, such as Nestle, General Electric and Ford Motors.

Corporate Affairs Minister Prem Chand Gupta dismissed Satyam's board late Friday and, in an official statement, condemned "the greed and misdeeds of a few persons who were at the helm of affairs of the company."

The statement said the federal government would appoint 10 people "to function as directors of the company," but no one had been named to the seats.

Although Satyam is a publicly traded company, the Indian government can intervene in extraordinary circumstances to stabilize a company.

Gupta told reporters that the new board would hold its first meeting within a week and would appoint a new management team.

Archana Uttapa, a Satyam spokeswoman, said the company did not know who would be named to the new board. A board meeting scheduled for Saturday was canceled, she said.

Uttapa said the "business side continues," with work scheduled to return to normal Monday.

Although media have speculated about mass layoffs and whether the company can meet its payroll obligations, Uttapa said salaries have been paid through December and cleared for January.

The scandal comes at a delicate time for India's information technology companies, which are struggling against a global slowdown and waning economic growth at home. India's IT firms derive 40 percent of their global revenue from financial services clients.