Simmering Swindle

By Christopher Byron
New York Post
July 25, 2005

In recent weeks, this column has been keeping the spotlight on a white-collar fugitive investor from India named Dinesh Dalmia, who has managed to stay one step ahead of an Interpol worldwide "arrest on sight" notice since last winter, yet by some accounts may be wandering around New Jersey even as we speak.

Dalmia is of interest because of the role that Indian authorities say he played in a global stock swindle five years ago, and what it has since led to.

Here in the U.S., authorities seem indifferent to any aspect of the Dalmia affair. Yet the swindle that began on the Calcutta Stock Exchange in the autumn of 2000 as a pump-and-dump scheme, spread like an oil slick until it had swallowed a New Jersey-based software company that Dalmia controlled called Allserve Systems Corp.

Allserve was established to take advantage of the outsourcing opportunities that have developed within the vast and hidden underbelly of America's service-oriented economy. In this world, an astounding 3 million knowledge workers toil anonymously at the menial, semi-skilled tasks of the digital age — from data entry keypunching to answering phones at customer-care call centers.

Squeezed from below by immigrant workers eager for any job in which a reading and writing knowledge of English is not necessary, these workers are now being squeezed from above by so-called "body shops" like Allserve, which have sprung up to help cost-conscious employers outsource their back-office operations to the low-wage economies of Asia.

To that end, Allserve had been running a network of outsourcing sales offices that stretched from California to New Jersey to drum up business for a body shop called DSQ Software Ltd. that Dalmia had set up in India. But as Dalmia's pump-and-dump began, the Allserve network had already started to implode. Regulators in at least nine states either suspended or terminated the network's right to conduct business, citing Allserve's failure to pay taxes and file required paperwork.

Yet the ripples from Dalmia's antics extend beyond such scofflaws, and now lap at the unlikely feet of two of the American media's best-known business figures: The chairman of the Warner Music Group Corp., Edgar Bronfman Jr., and Philip Geier Jr., the retired CEO of the Interpublic Cos., the global advertising company.

We’ll get to the de tails in a minute concerning how these two media biggies became involved — even peripherally — in the Dalmia matter. But first a brief reprise of what the Dalmia affair is all about: The wide open vulnerability of this country's economy to any scoundrel on Earth who is up to speed on the use of an offshore mail drop and a trust account.

Cleverly exploited, those tools make a mockery of the Bush administration's crackdown on financial crime as a way to get at terrorist money laundering. In July 2001, then-Secretary of the Treasury Paul O'Neill told a Senate subcommittee the administration was beginning a global assault on offshore tax havens. But four years later, the amounts on deposit in dollar-denominated offshore accounts now total nearly $4 trillion, or close to double the amount on deposit at the start of the decade.

Dalmia's journey to this world of masked identities and numbered accounts began in the teeming streets of Calcutta at the start of the 1990s, where he set up an outsourcing body shop they called Square D Software Ltd.

In the decade that followed, Square D Software expanded across Europe and the U.S. until, by the end of the decade, it was racking up revenues that approached $64 million annually — bringing in investors ranging from Bank of America and Merrill Lynch, to Credit Suisse First Boston and the Templeton funds.

Yet neither the investors nor any regulators seemed even the slightest bit concerned as more and more of the company's soaring revenues began sluicing through a multiplying array of Dalmia-owned or controlled "associate" firms.

Nor did they seem to mind that the companies in this bewildering network kept changing their names as the tech boom roared on. In the U.S., a Texas-incorporated entity that Dalmia's Indian operation owned under the name D Square Software Inc., changed its name eight times between 1993 and 2003, but Texas regulators dutifully processed the paperwork without ever asking why.

The name changes for Dalmia's U.S. operations reflected similar activity elsewhere in the network. In Britain, the authorities seemed equally uninterested when Dalmia set up a private company, which he himself controlled, and, began using it to channel business to India. The U.K. company underwent five separate name changes of its own during the period.

Only when the shares of Dalmia's public company in India — by then known as DSQ Software Ltd. — soared a stunning 341% during the first three months of 2000 did Indian authorities at last take notice. In the probe that followed, they wound up uncovering the pump-and-dump scheme as well as four separate offshore shell companies in Mauritius and Tortola that the plot revolved around.

But Dalmia was hardly sitting on his hands, and while the regulators were investigating him, he was busy secretly transferring DSQ's worldwide assets into some of the same offshore shell companies he had used for his pump-and-dump.

In early 2002, Dalmia began negotiations to sell this buried treasure to a Singapore-based outsourcing company called Scandent Group. Founded the year before by an Indian businessman named Ramesh Vangal, Scandent boasted a board of advisers that knew little about the body shop business but whose members had been longtime friends of Vangal.

Included among them: the former CEO of Pepsi Cola, Christopher Sinclair; Geier of Interpublic; and Bronfman and father, Edgar Sr., who once employed Vangal as head of Asian operations for the Seagram Co. empire.

A review of various draft contracts for the Scandent sale reveals a deal drenched in obfuscation over what the Dalmia side was selling and the Scandent side was buying. In several places, the contracts refer to the existing DSQ network as the "target companies" and the Scandent entities into which their assets are to be transferred as the "mirror companies."

In one contract, the seller's promise to change the names of the target companies after the transfer of their assets to Scandent. In a separate contract, Dalmia is asked personally not to open up new businesses and begin competing with Scandent all over again.

In another contract, the target company assets are identified as being held by a Tortola shell company called Globetech Worldwide Ltd. The same shell company is named in a subsequent U.K. government filing as owning 30% of the privately held British company that Dalmia had launched years earlier and was now using to funnel DSQ's resources into the Tortola shell.

The draft contracts bear the name of Ramesh Vangal as a proposed signatory, but there is no mention of his window-dressing friends on Scandent's advisory board, suggesting that Sinclair, Geier, and the two Bronfman men knew little if anything about the "mirror companies" and the Tortola shells that held them, let alone the motivation that Dalmia, the seller, clearly had in dumping them.

A phone call to the Greenwich, Conn., residence of Scandent chairman Sinclair on this and related matters was not returned.

As a footnote to all this, shareholders of a publicly traded, New York-based company called The A Consulting Team, Inc. are scheduled to vote this week on a merger with a privately held, New Jersey-based outsourcing body shop called Vanguard Info-Solutions Inc.

As has already been reported in this space, if the merger goes through, this Nasdaq-listed company will as well become majority-owned by the Tortola shells into which so much of Dalmia's handiwork has disappeared already.

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