Stein Bagger cried and pleaded guilty before a Danish court to charges of aggravated fraud and forgery

Stein 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 that the swindle amounted to around $US185 million ($265.5 million), a modest sum next to the alleged fraud of Bernard Madoff in the US, 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 has dug into Mr Bagger's personal life, particularly his obsession with physical fitness: how he met his second wife in a favourite gym, 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. (They, too, met at the gym.)IT Factory chairman Asger Jensby 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 are now 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 ($91.9 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 DK121 million. This year, said chairman Mr Jensby, IT Factory was expected to roughly quadruple its profit.Denmark’s KPMG said it was "shocked" and "co-operating with police". Deloitte's Danish unit said it had 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 awards program. The accounting firm, he added, was "unable to understand the last few days' developments"."If things look too good to be true, they probably are too good to be true," said 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 the IT Factory chairman, who insisted there was no need for concern.

Mr Jensby now says he was wrong and estimates that at least 95 per cent of IT Factory's reported business was fictitious. He said 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. 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 US, 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 DK125 million it said it was owed by Mr Bagger's now defunct company.
One person to come out of the mess looking good is Dorte Toft, 64, a freelance journalist and blogger. She, too, received an email 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 said, virtually no one wanted to listen to "an old woman".
Mr Bagger, she said, went to great lengths to conceal his deceptions. Earlier this year, she began to question Mr Bagger about boasts that he had a doctorate from San Francisco Technical University. She asked how that was possible when no such university existed. 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, a US 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 non-existent 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 October 29. He called Ms Toft, the sceptical 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.She doesn't have hard feelings because, unlike so many others, she didn't lose anything. "He didn't cheat me. I got my money."