While Dinesh Dalmia remains in the custody of the Central Bureau of Investigation in Chennai, federal prosecutors filed charges against him in the US, while the Federal Bureau of Investigations (FBI) continued to probe the deals that duped at least 80 American financiers including several well known banks. After fleeing India to escape prosecution for securities fraud and then fleeing the US this January after duping financiers to the tune of $130 million (including around $30 million to British financiers), Dinesh Dalmia’s luck seems to have run out.
A Chennai court is understood to have cleared “polygraph, narco-analysis and brain mapping tests” to be conducted on him to get his cooperation. Such tests would probably have been considered a serious human rights violation in the US, but in India, the court reportedly considered it better and more humane than third-degree methods of the police.
Interestingly, the Americans are already probing the Dalmia-Allserve relationship that developed after 2002, while the Indian investigators are still stuck in the stock market scam of 2000 where he introduced fake shares in the market having surreptitiously and illegally enhanced the capital of DSQ Software.
The missing link is when he stripped DSQ Software of all valuable contracts (which he sold to Scandent Network, later Scandent Solutions) in April 2002 and spun off the foreign offices of the company into separate companies which were later used to kick-off the call centre business. Dalmia pocketed Rs 145 crore from the sale of DSQ Software’s lucrative contracts to Scandent, but none of that money ever reached DSQ Software, the listed company.
In April 2002, I wrote: ‘‘Companies with the Scandent Network name and different suffixes are also being registered across Europe for enabling the sale. The DSQ companies, including those located abroad, which Dalmia has renamed under the head Total Infosystems are being divided into two categories. The ‘target companies’ are the DSQ companies and they will transfer specified assets, lucrative contracts, nearly 90 per cent of the employees, the goodwill and intellectual property owned by the group.’’
‘‘The ‘mirror companies’ (the nomenclature is self explanatory) are those to which the assets will be transferred by DSQ Software. The transactions were expected to be completed by April 5, 2002. The contracts transferred by DSQ Software, DSQ Europe and Total Infosystems included those with Peregrine Systems Inc, the California-based Liberty Mutual Group, Exel Logistics (formerly known as MSAS Global Logistics Ltd). The deal has never been reported to DSQ Software’s Indian shareholders.’’
The Ministry of Company Affairs (DCA) still allowed him to compound several of his offences. It was only in 2005 that the Company Law Board ordered the appointment of nominee directors on the board of DSQ Software and put them in charge of management. The Serious Frauds Office, which also operates as a part of the MCA has yet to make any known headway in the investigation, although details about Dalmia’s shenanigans are spewing out through media efforts in Indian and the US.
After Scandent acquired the DSQ contracts, it set up base in Bangalore and even got listed on the Indian bourse through a reverse merger with SSI, which it had acquired. Scandent never
had to file a prospectus or face detailed scrutiny by the regulator. Dalmia vanished from India after the Scandent deal in 2002 despite a red-corner Interpol notice against him. He set up base in the US by acquiring a palatial mansion at New Jersey and a fancy red Ferrari. Soon enough, DSQ Software’s branch office was converted into the US headquarters of Allserve Systems. The Allserve story has also ended after the bankruptcy filing in the US. Its operations in London were the first to shut down, followed by those at Bangalore, Gurgaon and Chennai.
Again, Dalmia’s employees have suffered the consequences. Dalmia began to default on US repayments since April 2005, but filed for bankruptcy only around November 2005. By January 2006, employees at Allserve’s Indian operations were not being paid. An employee writing on condition of anonymity says, “We had a big drama and Dharna in the company” to demand payment. After three days of agitation and stoppage of work, we received 50% of our salary”.
But the impact on operations was drastic. The staff strength at that BPO dropped from over 500 per shift to a mere 50-odd employees. At the end of February, the emails stopped and the operations have probably shut down. Meanwhile, Dalmia’s US financiers and investigators are still unscrambling his operations.
The Star-Ledger, has a colourful description of the dawning realisation of how they were duped which merits repetition. ‘‘Charles Stanziale (the bankruptcy trustee) stood yesterday in the ‘cool room’, a climate-controlled, glass-enclosed corner office in North Brunswick where a cluster of cables was designed to link a bank of 6-ft-tall, flashing computer servers to clients across the globe. When tanziale and his associates pulled the plugs on the machines a few weeks ago, a funny thing happened: nothing. “Nobody called,” he said.’’ ‘‘The hardware represented the crumbs left behind from a memorable feast. The host, authorities say, was Dinesh Dalmia. Using aliases, subordinates and shell companies, Dalmia allegedly persuaded seasoned US financial companies to invest more than $100 million in his plan to equip call centers in India. Had they looked closely, the investors would have discovered the hardware was outdated, useless machinery’’, says the writer John P. Martin.
According to Christopher Byron of the New York Post, Dalmia faces up to 40 years in a US prison if he is extradited and convicted on all counts.