Stein Bagger, chief executive officer of bankrupt software company IT Factory, has admitted charges of fraud and forgery in a scheme where he invented contracts worth as much as $175 million.

The case, which is the biggest fraud case in Danish history, could end up with Bagger behind bars for eight years. Prosecutors said that Bagger ran a scam from a secret office a few hundred yards from the Copenhagen-based headquarters of IT Factory.

He forged the signature of Chairman Asger Jensby, he sold and leased back non-existing software products to the biggest banks in Scandinavia and funneled millions of kroner to his own companies abroad. Danske Bank may lose as much as $66 million as a result of IT Factory’s bankruptcy. Nordea Bank and SEB all stand to lose millions.

Bagger bought protection from Hells Angels bikers, signed a sponsorship deal with a Tour de France winning cycling team and saw his firm named Denmark’s entrepreneur company of the year by Ernst & Young.  IT Factory was an official partner of IBM.  When it went bankrupt, it owed IBM $24 million for outstanding software contracts. The fraud was uncovered after Bagger disappeared during a vacation in Dubai.

Back in Denmark, Chairman Jensby and other associates at IT Factory searched Bagger’s office, hoping to find clues. Instead, they found keys to the secret office where separate accounts revealed the scam. Next day, Jensby announced the company was bankrupt and that at least 90 percent of all revenue was invented.

Bagger was a bodybuilder and was hired in 2001 improve the profitability of IT factory in 2001.

More here.