The timing is uncanny. India’s notorious financial swindler, Dinesh Dalmia, got bail in a third case at the end of September and, barring a couple of cases in Chennai that will come up for bail hearings in the coming weeks, he seems set to roam free (but on bail) for the next couple of decades. After all, that is how long it takes for court cases in India to wind their way through the excruciatingly slow process of litigation and appeals.
Meanwhile in the US, he has already been indicted in absentia for a $19 million equipment leasing and wire-financing fraud; he and a couple of his associates were indicted on 10 separate counts of money laundering. The slickness of Dalmia’s sales pitch to financiers is evident from the list of companies that he has defrauded. These included GE Capital Finance of Danbury, CitiCapital Technology Finance of Mahwah, New Jersey, and Fifth Third Leasing Company of Cincinnati, Ohio.
Dalmia had acquired a new persona in the US and went by the name of Nick Mittal. He is also rumoured to have traded through Kolkata brokers under that name. The leasing fraud itself was perpetrated through three companies — Allserve, Vanguard Info Systems and B2B. One of Dalmia’s tricks has been to register what he calls “mirror companies” in different countries to confound and trick people. For instance, he registered Allserve and Vanguard in India, US and UK. The US companies fraudulently leased equipment, but stopped paying creditors and filed for bankruptcy within months of signing the lease deals with financiers. In January 2006, the British and Indian operations also folded up. It is pertinent that Indian investigation agencies made little attempt to track down their operations or link them to Dalmia despite repeated reports, certainly by this newspaper, on their multi-location operating centres.
Dalmia seems to have fooled US companies regarding his high net worth through a fancy lifestyle. This included a $1.9 million home in New Jersey and a red Ferrari, which was also financed. The court is now trying to recover $19 million and has had his luxury mansion forfeited. This is apparently just the tip of Dinesh Dalmia’s laundering activities in the US. He is, in fact, believed to have defrauded financiers to the tune of $130 million or more, of which over $30 million is owed to British financiers. Some of these frauds are already the subject of a trial in a federal court following a criminal complaint against him in March. The elaborate scheme to defraud lenders involved assembling worthless equipment obtained from used computer dealers to represent hi-tech offices and creating fraudulent documents, contracts and invoices for large business orders.
Dalmia, it may be recalled, came into the limelight at the turn of the century for his brazen manipulation of the shares of DSQ Software and DSQ Biotech, initially in cahoots with scamster Ketan Parekh. He was then involved in a series of shenanigans on his own, which included an illegal 50% increase in the capital of DSQ Software, without informing shareholders or stock exchanges; dubious placement of shares, repeated restructuring of the companies, clandestine alienation of their overseas operations, frequent name changes and, finally, selling off the most lucrative contracts of DSQ Software to Ramesh Vangal’s Scandent Technologies, again without informing his board of shareholders. After that, Dalmia fled to the US and the Central Bureau of Investigation (CBI) issued a ‘red corner’ notice against him. However, he seems to have taken enough money out of India to start a fresh series of scams, this time to defraud several US companies.
The US indictment is a major embarrassment for Indian investigators, especially for the ED, the CBI and the Serious Fraud Investigation Office
The US indictment is a major embarrassment for Indian investigators. Especially for the Enforcement Directorate (ED), CBI and the Serious Fraud Investigation Office (SFIO), which have done precious little to track Dalmia or investigate his activities, despite repeated reports by this columnist. After Dalmia’s indictment in the US, the agencies have set up a multi-disciplinary committee to investigate his dealings. Since Dalmia has already been indicted following a detailed investigation, this only seems like a cover-up exercise and may include some foreign trips for the investigation officials. So far, Sebi has slapped crippling penalties on Dalmia. The ED has also slapped penalties on DSQ Software and DSQ Biotech, but did precious little to take its action forward in obvious directions. Only the Kolkata police have been doggedly and persistently following up the illegitimate preferential allotment of 1.3 crore DSQ Software shares to his own companies.
While Dalmia and his associates face a prison term of up to 30 years in the very first indictment, his troubles in the US may be just beginning. The elaborate fraud that he conceived and executed was recently reported to a House Sub-committee on Oversight and Investigation of the US Congress. While the hearings at an open forum on September 29 were mainly on outsourcing and pretexting, US journalist Christopher Byron, who exposed several of Dalmia’s swindles in that country, drew the committee’s attention to his astonishingly brazen scams. If the Congressional sub-committee takes this seriously, it would not only mean more problems for Dalmia, but serious embarrassment for India’s outsourcing operations in general.
It is one good reason why the government must ensure a proper investigation into Dinesh Dalmia’s doings, as well as a clean-up of the BPO industry, whose reputation has taken a repeated bashing in recent times.