Friday, June 1, 2007

FUGITIVE FINANCIER'S STOCK FRAUD SCAM GETS PERSONAL

FOR the past two months this column has been chronicling the Krakatoa-like eruptions of fraud, forgery and identity theft that have been darkening the sky over New Jersey in the bankruptcy proceedings of a North Brunswick computer company called Allserve Systems Corp.

Allserve, which claimed (for a time) to be world leader in the booming computer-based business of corporate outsourcing, is the plaything of Dinesh Dalmia, a rogue financier from Calcutta. Last week the company brought evidence of one of Dalmia's most remarkable, and scary talents — a Zelig-like ability to dress himself in the camouflaging identity of virtually any person or company that comes near him.

Latest example: An unlisted cell phone number that was issued by then-Nextel Communications in April 2002 to a Bronx security guard, Gilberto Alvarez.

Last week, Alvarez's cell phone number was discovered in the bankruptcy files of one of Allserve's creditors, where it adorned an invoice seeking $1.3 million from the subsidiary of a Cincinnati-based software company called Cincom Systems — with the money to flow to a company secretly controlled by Dalmia.

This was all astonishing news to Alvarez, who insists that he knows nothing of Dalmia or the Allserve affair, and said he has no idea how his cell phone number turned up on the invoice.


Dalmia certainly knows the answer to that question if no one does. But like the rest of Allserve's largely Indian-born top brass, he's reported to have left the country and returned to India — leaving behind the mystery of Alvarez's cell phone number along with a lava flow of bank fraud, forgery and money laundering that now stretches from New Jersey to Singapore.

The invoice itself — ostensibly issued by Allserve supplier IGTL Solutions (USA) Inc. — is actually a tissue of lies, and the bankruptcy case file contains at least a dozen more like it, from its hoaked-up and bogus logo to its make-believe street address. The invoice even includes what purports to be IGTL's main corporate switchboard number. In reality, the number belongs to Alvarez's cell phone.

The invoice, issued in June 2004, seeks payment for $1.3 million worth of enumerated computer equipment, and directs that payment be made to a bank account at the Franklin Park, N.J., branch of PNC Bank.

BEHIND this hoax lay more than a year of history, beginning with the incorporation of IGTL as a New Jersey shell company housed in Allserve's North Brunswick office and having Dalmia as its president. The company's name was chosen to match, word for word, the name of a separate, and fully functioning, computer vendor based in Arlington, Va.

The idea behind the brazen ploy — which amounted not simply to the theft of a single individual's identity but to that of an entire corporation — was to give the invoice enough legitimacy so that Cincom would pay the $1.3 million bill without thinking. And the scam worked, because a subsequent notation on the invoice indicates the charge was approved for payment.

The use of Alvarez's cell phone number on a forged invoice is now just one more thing for the FBI to investigate as its agents struggle to scope out the ever-widening dimensions of the Allserve bankruptcy and the chicanery of its buccaneering Mister Big, Dinesh Dalmia.

From the start, Dalmia's calling card has been the purloined identity — a disturbing fact when one considers that much of the growth in the outsourcing business is coming from U.S. banks, credit-card companies and other such financial services outfits, which are blithely outsourcing their customer billing and records-keeping work to offshore data-processing sweat shops run by men like Dalmia.

Now, the collapse of Allserve has brought to light a whole new demi-world of stolen corporate identities featuring Dalmia-linked fake and "mirror image" companies, each set up to facilitate swindles that have so far bilked close to $100 million from a long list of presumably savvy U.S. lenders.

In California and Delaware, investigators have uncovered Dalmia-controlled mirror image and fake companies designed to look — on paper at least — like clones of Allserve's own business partners. In Delaware, there's even a mirror image of Allserve itself — set up as part of a failed scheme to take over a Texas-based outsourcing company called Aegis Communications.

No company has been more shaken by this skullduggery than privately held Cincom, one of the nation's largest, oldest and most-respected software companies. Some of the others that got snookered are International Business Machines, CIT Group and Wells Fargo Bank.

Almost immediately after setting up Allserve in early 2003 as an outsourcing operation in the U.S., Dalmia set up a fake version of Cincom as a Delaware shell. But Cincom officials discovered it and threatened to sue, causing Dalmia to stop — at least temporarily.

But a year later, Dalmia began worming his way into Cincom all over again. This time it happened through a mid-level Cincom sales manager who has now been put on leave by the company and is thought by officials to be facing indictment for a variety of offenses involving payments to Dalmia-linked companies. Others at Cincom are believed to be targets as well.

In London, yet more forged invoices tied to Cincom have now surfaced. One seeks a $911,690 payment, in the name of a Santa Clara, Calif., company called Cincom Systems Inc., to an account at the same Franklin Park, N.J., branch of PNC Bank listed on the invoice containing Alvarez's cell phone number.

A search of California business records reveals no such company, but does disclose a resident named Anoop Kapoor, who has held positions as a top official at both the London and New Jersey Allserves.

For two-and-a-half years, The Post has been pretty much a voice alone in warning of Dalmia The Despicable's arrival in town and what it might lead to. Yet no one listened as he prepared to pick the pockets of U.S. corporations a hundred times his size, then skedaddle back to India.

Now readers of this column have been up close and personal with a man who epitomizes all that is worst in the scruple-free business climate of the developing world. So, isn't it time for us to say, "Enough's enough!" — and put an end to this nutty outsourcing racket once and for all?

JUST forget about the liberal whining over the millions of entry- level computer jobs that have been wiped out in the U.S. already by this foolhardy approach to cost-cutting. Instead, think only about Gilberto Alvarez, the Bronx security guard, and how lucky he was that Dalmia didn't get his hands on more than just his cell phone number.

Then ask yourself this: If we can't even catch a thug like Dalmia while he's parading around New York robbing us all blind, then how on earth will we ever catch him — or others like him — if we're dumb enough to hand him all the computerized records of value that we have, so that they never have to leave the safety of their own squalid, corrupt home countries to steal it in the first place?

Isn't that what this all comes down to . . . really . . . in the end? Not being hopelessly stupid about the same thing . . . twice? Say goodnight, Gracie, it's been fun.

http://www.suchetadalal.com/articles/display/46/1924.article

Iridium’s delayed launch

Investors in the failed Iridium satellite phone project of Iridium are seeking around $4 billion in damages from Motorola, whose group was the lead promoter of the Iridium project


Iridium’s delayed launch
By Anna Marie Kukec
Daily Herald Business Writer

Some called it fraud.



But it more likely was just “tech-testosterone,” said Herschel Shosteck, president and chairman of The Shosteck Group, a wireless technology consulting firm in Silver Springs, Md.

He referred to creditors’ initial shock-and-awe regarding Iridium LLC, a revolutionary satellite communications company, and its system that was developed by Motorola Inc. and launched in 1998. The $5 billion network attracted few subscribers and nose-dived into bankruptcy the following year.

“It was pure fantasy, not fraud. It was delusional, not fraud. It was insanity, not fraud,” said Shosteck, an adviser who tried to dissuade some investors at the time. “Fraud implies purpose or knowledge in transmitting false information or intent to gain money from something. These people just didn’t understand anything.”

Since then, Motorola has spent millions settling several lawsuits arising after Iridium’s bankruptcy. And a trial is scheduled for Oct. 23 on a lawsuit against Motorola by the Official Committee of the Unsecured Creditors of Iridium in Bankruptcy Court in New York. The case, filed in July 2001, seeks around $4 billion in damages for claims alleging breach of contract, warranty and fiduciary duty, among others.

How it started

In 1987, Motorola developed the Iridium concept as a way to provide mobile phone service anywhere in the world through a network of more than 60 orbiting satellites. After more than a decade of work, Iridium began offering service in 1998.

A few months later, Iridium ran into trouble. Subscribers weren’t jumping for it, due to cost and quality of service issues, and great strides in Motorola’s own cellular technology were nudging it aside.

In 1999, Iridium defaulted on loans totaling about $1.5 billion and filed for bankruptcy protection.

“Iridium was absolutely brilliant, but it was economically not viable,” Shosteck said. “If you’re in trouble in the middle of the Antarctic, you’re not going to call your mother-in-law in New York. You’re going to call for help. … The business just wasn’t going to generate enough revenue from the developing world and the capital investment was just too great.”

Also, Iridium was competing with other satellite networks, including Globalstar. With the quick advances in the cellular phone network, the market became saturated, said David Weissman, senior telecom analyst with Zacks Investment Research.

“You must also consider the intellectual property and the technology learning curve that it brought to Motorola back then, and how adaptive the company was in progressing back to more mainstream markets where it is now,” said Weissman. “Iridium also was a partial response to defense and government requirements for closer reliance on the latest commercial off-the-shelf technology. The massive network may have not panned out, but Motorola developed a better understanding of its customer requirements.”

A new company

In 2000, a new group of investors led by Dan Colussy formed Iridium Satellite LLC and acquired all the assets for around $25 million. They pumped in another $100 million to get operations going again.

“I was a user of the system and realized what a tremendous network it was,” Colussy said during an interview while on business in Portugal. “It was just too valuable and too much of an advanced piece of technology at the time to let it just go away.”

The Iridium system has the unique ability to reach all of the world’s remote areas, including the airspace, the oceans and the many under-developed parts of the globe that have no communications systems, Colussy said.

Since none of the satellites were destroyed after the bankruptcy filing, the system remained intact and ready. Colussy, who became the new company’s CEO, pursued subscribers from different industries, such as aviation, maritime and government agencies.

Iridium secured a contract with the U.S. Department of Defense and has played major roles in the Hurricane Katrina region as well as the war in Iraq.

Today, Iridium remains privately held. It posted $188 million in revenue in 2005 and has around 100 employees, mostly at its Bethesda, Md., headquarters and facilities in Tempe, Ariz.

It has about 162,000 subscribers and anticipates $200 million in revenues this year. By 2013, Iridium plans to replace its 66 satellites with newer technologies, Colussy said.

Meanwhile …

While the new Iridium rose from the ashes, Motorola has been dealing with residual suits from the old company.

The lenders’ claim for a $300 million guarantee had been filed in federal court in New York. That case led to a judgment against Motorola in early 2002, which was appealed. The judgment, which totaled $371 million including interest, was paid by Motorola in April 2002.

In March 2003, Motorola paid $12 million to settle remaining lawsuits filed by Chase Manhattan Bank, resolving five legal disputes with the lenders. Motorola had a $260 million counterclaim against Chase, but dropped it with this settlement. The settlement also covered a case filed in a New York state court alleging that Motorola and the old Iridium had “fraudulently induced” Chase and 17 other lenders of old Iridium to enter into the Senior Secured Credit Agreement. That case sought the entire unpaid balance of the $800 million loan, plus interest and expenses.

Motorola still faces another lawsuit filed in U.S. Bankruptcy Court in July 2001 by the Official Committee of Unsecured Creditors seeking damages in excess of $4 billion.

“While the still pending cases are in various stages and the outcomes are not predictable, an unfavorable outcome of one or more of these cases could have a material adverse effect on the company’s consolidated financial position, liquidity or results of operations,” Motorola said in a government filing.

Motorola executives declined comment for this story, but did release a statement saying “Motorola believed that Iridium would be technically and commercially successful as was demonstrated by Motorola’s commitment to the Iridium project. Iridium was a technical success and the system is still up and running today.”

Iridium ranks as one of Motorola’s more embarrassing failures, said Carmi Levy, senior research analyst for Info-Tech Research Group.

“This is an example of hype spinning out of control, of proper elements of due diligence not being performed, and of failure to properly assess competing technologies which could potentially — and ultimately did — kill demand for the initial launch of Iridium,” he said.

Levy compared the Iridium frenzy with the Internet boom of the late 1990s, where companies assumed the momentum of the market would more than make up for failures to address the fundamentals of business.

“Both Motorola and Iridium have evolved into different companies since all of that happened,” said Levy. “I believe the market recognizes the Motorola of today is a much more evolved firm than the Motorola that decided to back the launch of Iridium.”

http://www.suchetadalal.com/articles/display/46/2245.article

Why is corporate India worried about the N.Narayana Murthy Committee?

Background: In just over a year since the Securities and Exchange Board of India’s (SEBI) corporate governance rules came into existence, Indian companies have shown that the can follow the rules without necessarily imbibing the spirit of good governance.

But Indian companies actually began to look good in comparison with the extent of corporate scandal and outright fraud that continues to be unearthed in some of the biggest and most respected companies of the world.

The corporate clean up that followed revelations from Enron, WorldCom, Tyco, Morgan Stanley etc. led to a further tightening of rules in India. What followed was the N.Narayana Murthy Committee set up by SEBI (Click here for more) and the Naresh Chandra Committee ( Click here for more) by the Department of Company Affairs (DCA) –. Between them, the two reports have examined all corporate relationships and come up with a set of recommendations that would make corporate disclosures more comprehensive and the capital market safer for investors.

But corporate India is furious. I learn that the Tata group, surprisingly enough, dashed off a letter to the powerful Confederation of Indian Industries (CII) asking why it had not objected to some of the recommendations. Rahul Bajaj, Chairman of Bajaj Auto, speaking at the CII’s Western Region Annual Meeting last month felt that “we are going too far” with the disclosures.

CII then decided to debate the issue at its Annual Meeting in Delhi on April 28 and 29.

The CII’s main grouse is apparently the Narayana Murthy Committee’s recommendation that independent directors should step down from the board after three terms of three years each. Which is nine years prospectively after the recommendation is accepted (if it is accepted by SEBI and made mandatory).

Speaking at the seminar, Senior Tata Director J.J.Irani said that directors began to make the best contribution only after they have been on the board for 20 odd years. Considering that people are usually invited to be directors only after they are 45 or older, J.J.Irani seems to suggest that an independent director is truly useful only after the age of 65. Yet, most world leaders today are in their 40s and 50s. Bill Clinton finished two terms as the most powerful man on earth by the age of 52. Tony Blair is under 50 so is Russia’s Vladimir Putin.

Ironically, R.Gopalakrishnan, a senior Tata director specifically represented the Tata group on the committee but he made no dissent while on the committee. In fact, another highly regarded committee member is a director on several Tata companies and he did not object either.

It makes you wonder whether the recommendations of the Narayana Murthy Committee are really the issue, or there are other worries at work here.

The CII invited me to participate in its discussion on April 29. Here is what I think and what I said at the meeting.

CII National Conference – April 29 Thank you for inviting me to what promises to be a tricky session. I hope can be at least as blunt on the subject of corporate governance as Rahul Bajaj was about Narendra Modi’s governance.

I am told that this particular discussion is born out of Corporate India’s fear that we are going too far on the issue of corporate governance. That we are getting “holier” than most developing and developed countries. And, that there is no rationale for rules and disclosures being made more stringent.

Lets look at various events since the code came into existence. The CII triggered off the good governance debate and published its code for desirable corporate governance in 1998. This was followed by the Kumar Mangalam Birla report --- substantially a copy of the CII code- that was converted into a mandatory reporting requirement by SEBI under the listing agreement of stock exchanges.

Is SEBI wrong in tightening the rules after the Kumar Birla code? Surely, those of you who have followed corporate developments, after SEBI’s code became mandatory can’t be asking that question.

If the focus of good corporate governance is maximising shareholder value, while ensuring fairness to all stakeholders—then Indian companies haven’t done too well.

The best of corporate groups have short-changed investors—especially during mergers and takeovers.

Independence of directors has been exposed as a sham in some of the best groups, which were unable to spot rampant insider trading and illegality. · Our largest private sector companies have brazenly indulged in price manipulation and, dare I say, insider trading. · Leading companies have found obnoxious loopholes or used the opaqueness of Sec. 391 of the companies act (or the scheme of arrangement via the High Court route) to leave retail investors out in the cold. Yet, these are the people they call their co-owners. AND, I am not talking about the bottom 1000 of India’s 6000 odd listed companies – I speak about the top 50.

Whenever we discuss good governance, the issue of form v/s substance comes up repeatedly. Has the code led to compliance in substance? Many of you will readily admit that it has not. Even today, very few companies appoint truly independent directors. One industrialist told me that the renowned international banker on his board happens to be his ‘sadu’ – which makes him technically ‘independent’ but not necessarily so. I am sure there are a hundred other examples.

Had SEBI’s code actually worked, we ought to have seen a revival in investor confidence and some signs of the primary market looking up. That has not happened. And it is not because companies don’t need money. There are at least three good issue waiting to hit the market – Maruti, TCS and maybe Bharat Petroleum – but they are reportedly worried about poor investor response. So clearly, there is scope for a sequel to the Kumar Birla effort.

Now consider the strange reactions to the Narayana Murthy committee report. Instead of being released for discussion on SEBI’s website, the report, curiously enough found its way to the Finance Secretary (FS). I learnt from government sources that the report could not be released until the FS gave our “independent regulator” the green signal to do so.

Now that it has been released for discussion, corporate India is worried that its implementation would make it “holier” than other developed countries.

Well, my suspicion is that most of these worries stem from the fact that Narayana Murthy headed the committee.

Why? Because Mr. Murthy heads a company that Forbes magazine described as “a model of transparency, not just for the rest of corporate India but for companies everywhere”. He mentors the only company in the world to publish financial statements according to the accounting standards of eight countries. And there is a probably a justifiable fear that this man maybe trying to impose his standards on the rest of corporate India.

If that is indeed a worry, then you have got it all wrong. In fact, because of his insistence on democratic proceedings, he couldn’t impose his views even on the committee – not that he tried—he was insistent on a workable code rather than a fanciful one. Funnily enough, the same democratic proceeding also ensured that SEBI could not impose its views about corporate governance ratings on the committee.

Let me take a few minutes of your time to describe how Mr.Murthy conducted the proceedings. The entire report was completed in exactly three meetings – not because he wrote the whole report – or sub-contracted it to Omkar (Dr.Omkar Goswami is a Senior Economist with the CII and a director of Infosys Technologies), -- but because he followed a system of elimination of less favoured issues.

The homework began before the first meeting with every member submitting a two-page note on governance issues that ought to be taken up by the committee. These were aggregated, by Infosys—and converted into a simple set of points for further discussion. This eliminated the usual round of opinions and speeches that usually happen on Day 1 of any new committee.

The discussion led to the identification of 75 odd issues. Each committee member was then asked to rate every one of these on a scale of 1 to 10, on the following parameters:

Importance: is the issue important enough

Fairness: Does the report enhance fairness?
Accountability: Will it make companies more accountable?
Transparency: Will it increase transparency?
Ease of implementation: Is it easy to implement?
Verifiability: Is the recommendation verifiable?
Enforceability: Is it enforceable?

The submissions were again processed by Infosys – or rather Sumant Chidambi of Progeon – and aggregated. Only those issues that scored more than 50 marks were taken up for discussion at the second meeting. These were issues that received high ratings from a majority of members.

The result? All extreme views were eliminated.

What is more important from your point of view is that several issues raised by the four investor activists on the committee scored below 40 and were eliminated. Since the process was transparent, there were no protests. In fact, there has been one belated dissent note from Prof. Manubhai Shah. Significantly enough, his views have not been endorsed by the other investor activists in a mindless show of solidarity. (Click here for more)

Similarly, some demands were diluted by a majority vote. For instance, the debate on the term of independent directors started with a demand that independent directors much change every 3 to 5 years. Finally, the majority decision settled for almost a decade – three terms of three years, to be applied prospectively. This means, that all companies have nearly a decade in which to expand the pool of people capable of being their directors. Or to spot talent outside your current charmed circle.

Finally, I suspect that when SEBI set up the Narayana Murthy committee, it hoped that the committee would endorse its pet project of mandating corporate governance ratings. But despite an eloquent presentation by SEBI officials, the committee has not recommended mandatory corporate governance ratings. In fact, Narayana Murthy was one of those who insisted that they are far too subjective to work—although he surely had no reason to worry about his own rating.

Since governance ratings went out of the window, some follow up demands from investor activists were also eliminated. One of these was a demand that only companies with good governance ratings be invited to prestigious committees or made office bearers of industry associations.

All this only goes to show that the report is about what is doable and acceptable to the widest cross-section of people connected with business and industry. Let me conclude by saying – don’t worry. Indian business has a long way to go before it needs to worry about becoming ‘holier’ than other developed countries.

http://www.suchetadalal.com/articles/display/569/523.article

Phaneesh Murthy of Infosys: The Sexual harassment saga

Phaneesh Murthy, the marketing hotshot from Infosys Technologies Ltd who had to leave India's most respected company following a sexual harassment suit has cost the company $ 3.9 million in settlement and costs. Phaneesh, who has got away lightly in terms of loss of reputation, has expressed irritation at the settlement announced on 11 May 2003. The normally reticent Infosys has reacted to his claims in a detailed press release, about what threatens to turn into a dirty Indian battle if Phaneesh persists with his charges.

Here is Infosys's clarification on settlement of sexual harassment lawsuit

Bangalore, India - May 12, 2003 In response to Infosys' announcement that it has settled the litigation with its former employee, Reka Maximovitch, Mr. Phaneesh Murthy, its former director and officer, has asserted that since the settlement was not his preferred route, he did not contribute to the settlement amount. He has further asserted that Infosys settled this matter because of its upcoming ADR offering, and the company wanted to retaliate against him because he has filed a lawsuit against the Company demanding the release of certain shares in Infosys' possession.

Infosys' spokesperson R. Nithyanandan, Corporate Counsel and Head - Legal, termed every one of these assertions as being blatantly false, and offered the following clarifications:

On Phaneesh's asserted reasons for Infosys settling this matter:

"As has been stated, Infosys settled this matter because it believed it was in the best interests of the company to do so. The company has disclosed in all its SEC filings as early as October 2002 that the case with Reka may materially impact the earnings of the company. As the company had already disclosed the risk in its filings there is no connection between the settlement and the proposed ADR offering.

This case was settled on April 25, 2003 as the depositions were to start on the same day. A reading of the many public filings in this case would bring forth the grave nature of the allegations made against Phaneesh."

On Phaneesh's claim that he was an unwilling party to the settlement:

"In the settlement discussions, Infosys had made it clear that it was willing to settle with Reka, without Phaneesh.

For Phaneesh to participate in the settlement, Infosys had clearly specified that (a) he agree to Infosys having the right to sue him for all his actions and lack of contribution (b) he further agree that in the event Infosys sued him for his actions, including for breach of his fiduciary duties and indemnification, he would have no recourse to the insurance company and (c) that the company not be bound by any term of confidentiality with respect to this settlement or the case.

Initially, Phaneesh refused to participate in the settlement on these terms. When Infosys confirmed to him that the company was anyway going ahead with the settlement alone, Phaneesh came back voluntarily and signed the settlement and agreed to every condition that Infosys had set. As the company retained its right to sue Phaneesh for his actions and lack of contributions, it went ahead with the settlement without any contribution from Phaneesh.

If Phaneesh believed he was innocent and wanted to clear his name, he should have stayed in the lawsuit by himself and defended his position. We had given him this option. Instead of fighting to clear his name, he elected to settle."

On Phaneesh's claim that Infosys is withholding his shares and that he has initiated legal action to retrieve them: "

Infosys has not received any notice of demand in respect of these shares from Phaneesh and the company is unaware of any lawsuit filed by Phaneesh in this regard.

Under the company's 1994 ESOP scheme, every employee is required to meet all the liabilities including taxes, on the grant of the options. Every employee has entered into an agreement with the Infosys Employees Welfare Trust (EWT) to indemnify the EWT and the Company for any tax liability and as part of such indemnity agreed to keep a part of his/her shares with the EWT to meet any tax liability. The EWT is holding 25,600 shares belonging to Phaneesh Murthy as part of a tax indemnity he had signed on December 15, 1997. The company has not singled out Phaneesh Murthy for this indemnity or withholding of shares. More than thousand employees, who received stock options under the 1994 ESOP Plan, have signed the same indemnities and their shares are also being withheld under a similar tax indemnity. The tax liability is not settled and is currently being agitated in the Karnataka High Court. As a result, the EWT has retained this indemnity till the matter is resolved fully and finally. Signing such an indemnity is a condition for participation in the ESOP. Phaneesh has been aware of these facts since 1997 and his lawyers were again given this data in March 2003."

About Infosys Technologies Ltd. (NASDAQ: INFY) Infosys, a world leader in consulting and information technology services, partners with Global 2000 companies to provide business consulting, systems integration, application development and product engineering services. Through these services, Infosys enables its clients to fully exploit technology for business transformation. Clients leverage Infosys' Global Delivery Model to achieve higher quality, rapid time-to-market and cost-effective solutions. Infosys has over 15,000 employees in over 30 offices worldwide. For more information, visit www.infosys.com.

http://www.suchetadalal.com/articles/display/569/528.article