Denmark's biggest news story since the Muhammed Cartoons, peppered with Danish silliness [italicized by yours truly] because, no matter what, Denmark just can't deny that they are a goofy country. From the Wall Street Journal:
For Denmark's Entrepreneur of Year, Something Was Rotten
Stein Bagger Pleads Guilty to Faking Software Deals; His Ph.D. Was Phony, Too »
By ANDREW HIGGINS
COPENHAGEN -- At a banquet here late last month, accounting firm Ernst & Young feted a Danish software company for runaway growth under Stein Bagger, its dynamic chief executive. About a thousand guests, including Denmark's tax minister and leading business people, were there to applaud.
But Mr. Bagger, the night's big winner, wasn't there to pick up the accolade of "Entrepreneur of the Year" and two other awards. He was busy fleeing from what investigators now describe as Denmark's biggest business scam in decades.
Shortly before the banquet began, Mr. Bagger, 41 years old, vanished from a hotel in Dubai. He flew to New York, drove across America and then surrendered to police in Los Angeles. In the meantime, his award-winning company, IT Factory, declared bankruptcy. A liquidator has taken over IT Factory and is sifting through its affairs.
Sent back to Denmark Tuesday, Mr. Bagger cried and pleaded guilty before a Danish court to charges of aggravated fraud and forgery, crimes that could land him in jail for eight years, according to his court-appointed lawyer, Jesper Madsen.
"Most of his business was fake," says Jens Madsen, head of an economic-crimes unit now investigating the spectacular rise and fall of Mr. Bagger. The entrepreneur also happens to be a former bodybuilder who, before becoming a Danish tech superstar, posed for a Swedish muscle magazine dressed as Superman. He's now suspected of pumping up IT Factory's profits -- which nearly tripled last year -- through phony deals.
The gist of the allegations is that Mr. Bagger 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 people's money.
Speaking to a Danish tabloid last week, Mr. Bagger said he felt guilty, sorry and "so happy that everything got revealed." Threats from unnamed extortionists, he added, had sent him astray. "I can understand that some people feel I let them down," he was quoted as saying. His lawyer doesn't dispute the interview.
The saga has fascinated and appalled a nation that takes pride in its Nordic rectitude.
The chief investigator estimates the swindle amounted to around $185 million, a modest sum next to the alleged fraud of America's 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 clues to what went wrong, Denmark's media have dug into Mr. Bagger's personal life, particularly his obsession with physical fitness: how he met his second wife in a favorite gym, how he made money in his pretech days hawking muscle-boosting protein products and how he hired a burly Hells Angels Motorcycle Club member as a bodyguard. (They, too, met at the gym.)
Asger Jensby, IT Factory's chairman, says he is flabbergasted by the fate of what he thought was a "real company" run by a chief executive who was "sharp, a bit arrogant, very articulate and extremely orderly."
Leading banks meanwhile are trying to figure out how much money they lost in Mr. Bagger's blowout. Danske Bank, Denmark's biggest, says its exposure to IT Factory, is 350 million Danish kroner (around $64 million). Also taken for a ride is a champion cycling team that Mr. Bagger promised to sponsor. Badly jolted, too, are the accountants who did his books and found no irregularities.
KPMG audited IT Factory's accounts from 2005 through 2007. Deloitte did the same in the previous two years. From 2003 through 2007, IT Factory reported that its revenue grew 69 times and its profit rose 288 times, to 121 million kroner ($22 million). This year, says Mr. Jensby, the chairman, IT Factory expected to roughly quadruple its profit.
KPMG in Denmark says it is "shocked" and "cooperating with police." Deloitte's Danish unit said it has double-checked its 2003 and 2004 audits and found no problems.
Ernst & Young, for its part, has now withdrawn the three awards it gave to IT Factory on the day Mr. Bagger took flight. "We feel deceived," said Søren Strøm, head of Ernst & Young's "Entrepreneur of the Year" program, in a statement. The accounting firm, he added, is "unable to understand the last few days' developments."
"If things look too good to be true, they probably are too good to be true," says Bo Svensson, the head of a Danish software company who started sending out emails last year warning that IT Factory simply didn't 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 he was wrong and estimates that at least 95% of IT Factory's reported business was fictitious. He says 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. Svensson's messages.
A few months after Mr. Svensson's warning, IBM Denmark named Mr. Bagger's company as the year's "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. Bagger's now defunct company.
One person to come out of the mess looking good is Dorte Toft, a 64-year-old free-lance journalist and blogger. She, too, received an email message from Mr. Svensson last year. A former computer programmer, Ms. Toft began swapping notes with Mr. Svensson, whom she initially knew only as "John Doe." In December, she wrote a blog challenging Mr. Bagger's extraordinary growth figures.
But, she says, virtually no one wanted to listen to "an old woman."
Mr. Bagger, she says, went to great lengths to conceal his deceptions. Earlier this year, she began to question Mr. Bagger about boasts that he had a Ph.D. from San Francisco Technical University. She asked how that was possible when no such university exists. Mr. Bagger came up with an elaborate plan.
On the pretext of developing talking points for college employees to answer phone queries about academic records, he hired Vicki Lang, an American artist and actress living in Copenhagen, to play the role of an official at San Francisco State University, an institution that does exist. "If I'd thought about it, I might have said: 'Oh, this sounds strange,' but I was just happy to have a job," recalls Ms. Lang.
He wrote a script for a dialogue between himself and Ms Lang, who, as a university official, would explain that his nonexistent college had been folded into San Francisco State and confirm that he had a Ph.D. in international business. Mr. Bagger then told Ms. Lang he'd like to test the script over the phone on the afternoon of Oct. 29. He called Ms. Toft, the skeptical blogger, to his office for an interview at the same time.
When Ms. Toft showed up and started asking questions, Mr. Bagger announced that he would call San Francisco to prove that he was telling the truth about his Ph.D. Ms. Toft, smelling a rat, told him not to bother: "I knew him too well."
Ms. Lang says she forgot all about Mr. Bagger -- until he became the most infamous man in Denmark two weeks later.
Ms. Lang doesn't have hard feelings because, unlike so many others, she didn't lose anything. "He didn't cheat me. I got my money."