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LECTURER(S)Copenhagen Business School

CBS Responsibility Day 2010

Teaching Case

Fraud in IT Factory A/S: Who is responsible?

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From honest beginnings to bankruptcy

• Started in Copenhagen in 1997, growth

• Relocation to the U.S. in 2000

• Assets sold off in December 2001

From bankruptcy to a success story

• Consolidated the remains in CPH – Stein Bagger joins as CEO

• Reported soaring Revenue and Profit figures

• Ernst & Young gives Mr. Bagger the 2008 Denmark Entrepreneur Of The Year Award (removed 3 days later)

IT Factory A/S

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Largest fraud case in Danish corporate history

• Over 900 mln DKK defrauded

Stein Bagger orchestrated the fraud

• Forged signatures in a scheme of leasing contracts

• Became instantly famous while wanted by the authorities

• Sentenced to 7 years in prison with confiscation of 50 mln DKK

IT Factory A/S Fraud

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Erik Dybdahl (as an auditor of KPMG Denmark) audited IT Factory’s documents in 2005, 2006 and 2007

• Found no signs of wrongdoing

• Audited firms owned by Mr. Bagger – common practice in Denmark for affiliated businesses to share auditors

• Resigned from KPMG Denmark in August 2008 citing personal reasons – possibly to focus on family business

Erik Dybdahl

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KPMG Denmark

• Received criticism from the media

• Not legally responsible in the fraud since they audited forged documents

• Did not experience client outfall, had new clients coming

Problems may not be over yet

• Boris Frederiksen, IT Factory insolvency administrator, building a case against KPMG Denmark and IT Factory’s Board of Directors over their alleged negligence in the fraud

KPMG Denmark