Saturday, December 27, 2008

Bizarre but True

Mr. Bagger of accounting firm Ernst & Young IT Factory was declared guilty of fraud and forgery by Danish court last month. According to Jesper Madsen, lawyer of Mr. Bagger, “aggravated fraud and forgery are crimes that could land him in jail for eight years”.

A liquidator has now taken over IT Factory and is sifting through its affairs. “Most of his business was fake”, says Jens Madsen, head of an economic-crimes unit. He is also investigating the spectacular rise and fall of Mr. Bagger.

“If things look too good to be true, they probably are too good to be true” comments Bo Svensson, the head of a Danish software company who started sending out e-mails last year warning that IT Factory simply did not have enough known customers to explain its explosive growth. He sent one to Mr. Jensby, IT Factory's chairman, who insisted there was no need for concern.

Mr. Jensby now says , “I was wrong and estimates that at least 95% of IT Factory's reported business was fictitious” He further adds, “ Mr. Bagger stashed documents relating to fraudulent transactions in a secret office that was discovered only recently.”

Mr. Svensson also sent warnings about IT Factory to International Business Machines Corp. A member of IBM's European Business Partner Advisory Board, Mr. Svensson sent a long email to IBM managers in Denmark describing IT Factory as a house of cards liable to collapse.

“Something is completely wrong” he wrote, warning that Mr. Bagger posed a risk to IBM's own reputation as IT Factory in all contexts positions itself very close to IBM. Mr. Bagger, whose company had offices in India and the U.S., often boasted of close ties to IBM and helped sponsor a big IBM software conference in Florida.

An IBM spokesman, citing the current criminal investigation, declined to comment on what, if anything, was done in response to Mr. Svenssons messages.

A few months after Mr. Svenssons warning, IBM Denmark named Mr. Baggers company as the years Best Partner in a software business line. The head of IBM Denmark this year hailed IT Factory as creative and visionary. IBM has now filed a claim with IT Factory's liquidator to try to get back the 125 million kroner ($23 million) it says it is owed by Mr. Baggers now defunct company.

Dorte Toft, a 64-year-old free-lance journalist and blogger. also, received an e-mail from Mr. Svensson last year. Ms. Toft already wrote a blog challenging Mr. Baggers extraordinary growth figures she had already smelt that some thing fishy was going around and warned people but at that time no one wanted to listen to her. According to Dorte Toft , Mr. Bagger, went to great lengths to conceal his deceptions.

Earlier this year, she also raised questions about Mr. Bagger's boasts about his Ph.D. from San Francisco Technical University. She asked how that was possible when no such university exists. He hired Vicki Lang, an American artist and actress living in Copenhagen, to play the role of an official at San Francisco State University. Ms. Lang said she forgot all about Mr. Bagger and further added “ I don't have hard feelings for Mr. Bagger because, He didn't cheat me more over I got my money”.

Mr. Bagger is the same bodybuilder who, posed for a Swedish muscle magazine dressed as Superman. Hes now suspected of pumping up IT Factory's profits which nearly tripled last year. He used a web of phantom firms to get money from banks and then used these same companies to place big purchase orders for IT Factory software and services. He was buying from himself using other peoples money.

Speaking to a Danish tabloid last week, Mr. Bagger said, “I can understand that some people feel I let them down but i feel guilty, sorry and so happy that everything got revealed”

“We feel deceived”, said Søren Strøm, head of Ernst & Youngs Entrepreneur of the Year program, in a statement and further added, “I am is unable to understand the last few days developments.”

The chief investigator estimates the swindle amounted to around $185 million, a modest sum next to the alleged fraud of Americas Bernard Madoff but enough to fuel a jet-set lifestyle of sports cars and French Riviera holidays sharply at odds with the Danish norm.

Looking for more clues , Denmark's media have dug into Mr. Baggers personal life, particularly his obsession with physical fitness and how he made money in his pre-tech days hawking muscle-boosting protein products and how he hired a burly Hells Angels Motorcycle Club member as a bodyguard.