Dec. 18 (Bloomberg) -- The world is fascinated with Bernard Madoff’s alleged $50 billion fraud case -- except in Denmark, where he’s being upstaged by the nation’s own corporate crime scandal.

Stein Bagger, chief executive of bankrupt software company IT Factory A/S, was placed in custody on Dec. 16 after pleading guilty at a preliminary court hearing outside Copenhagen to charges of fraud and forgery in a scheme where he invented contracts worth as much as $175 million. More than a dozen prosecutors will work on the final indictment in the biggest fraud case in Danish history.

Bagger ran a scam from a secret office a few hundred yards from the Copenhagen headquarters of IT Factory, police said. Forging the signature of Chairman Asger Jensby, he’s charged with selling and leasing back non-existent software products to the biggest banks in Scandinavia and funneling millions of kroner to his own companies abroad.

“It’s a story of a very charismatic man who was able to pull this off at a time when banks should have been at their most risk averse,” said Caspar Rose, an assistant professor at the Copenhagen Business School. “Everyone seems to have been asleep at the wheel.”

The revelations of the charges have shocked the Scandinavian nation of 5.4 million, which ranked least corrupt of 180 countries in the 2008 Transparency International Corruption Index.

Raised Eyebrows

News of the scam is also raising eyebrows in some of Denmark’s most illustrious boardrooms, where executives are reeling from the lack of credit. Denmark’s biggest company, shipper A.P. Moeller- Maersk A/S, said on Dec. 12 it will shelve all new investment projects to free up cash as access to bank funding remains limited.

Danske Bank A/S, Denmark’s biggest lender, said on Dec. 2 it may lose as much as 350 million kroner ($66 million), mostly from leasing agreements made this year, as a result of IT Factory’s bankruptcy. Nordea Bank AB, the Nordic region’s biggest, has 23 million kroner at risk, while SEB AB, Sweden’s third-largest bank, may lose 68 million kroner.

“Everything looked good on the surface,” said Jonas Torp, head of media relations at Danske Bank. “There’s no doubt, looking at the case today, that there are things we could have done differently, but there’s no way you can protect yourself 100 percent against a scam.”

Hells Angels

Through the course of the swindle, Bagger bought protection from Hells Angels bikers, signed a multi-million dollar 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 a week before he fled to the U.S. from a hotel in Dubai.

IT Factory was also an official partner of IBM, according to Carsten Groenning, spokesman for the Danish unit of the world’s largest provider of computer services. When IT Factory went bankrupt, it owed IBM 125 million kroner ($24 million) for outstanding software contracts, he said.

“He wants to cooperate with police and has answered questions put to him,” Jesper Madsen, Bagger’s court-appointed lawyer, said in an interview broadcast live by TV2 News after the 5 ½ hour hearing. “He’s a broken man. He’s both very tired and very sad.”

Wife’s Handbag

The fraud was uncovered after Bagger disappeared during a vacation in Dubai. On Nov. 27 he took his passport from his wife Anette Uttenthal’s handbag and boarded a plane to New York. His wife returned to Denmark and reported him missing. She also called chairman Jensby, telling him about the disappearance, according to her family blog.

Why Bagger fled to New York hasn’t yet been established. When he arrived, he borrowed an Audi and a credit card from a business partner and drove across the U.S. to Los Angeles.

Back in Denmark, Jensby and other associates at IT Factory searched Bagger’s office on Nov. 30 hoping to find clues to the executive’s disappearance. Jensby found keys to the secret office where separate accounts revealed the scam. At a press conference the next day, he announced the company was bankrupt and that at least 90 percent of all revenue was invented.

“Stein Bagger is super intelligent, with psychopathic traits,” Jensby said at the press conference, adding he had considered Bagger a trusted business partner.

Bodybuilder

Bagger was born in Norway in 1967 to journalist parents and grew up in Frederiksvaerk, 25 miles from Hamlet’s castle in Helsingoer. He was a bodybuilder and hired Brian Sandberg, a Hells Angel and a former professional boxer, as his bodyguard for the past year, Joern “Joenke” Nielsen, Danish spokesman for the biker group, told Danish broadcaster TV2.

Jensby hired Bagger in 2001 to improve the profitability of IT factory. They bought the company in 2003 after it went bankrupt earlier that year

IT Factory was in January due to pay 40 million kroner to become co-sponsor of cycling team CSC Saxo Bank, whose rider Carlos Sastre won this year’s Tour de France. The day IT Factory was declared bankrupt, the team’s manager Bjarne Riis, himself a 1996 Tour de France winner, was to present his team’s new jerseys sporting IT Factory’s name at a Copenhagen press event.

Bagger earned as much as $45 million through the scam, Boris Frederiksen, the trustee appointed to oversee the bankruptcy, told the Borsen newspaper. Bagger said on Dec. 16 he didn’t know how much he’d made.

After the bankruptcy, Denmark’s Chief Prosecutor for Serious Economic Crime, Jens Madsen, sent out an international warrant for Bagger’s arrest on Dec. 4 via Interpol.

Bagger turned himself in at a downtown Los Angeles police station on Dec. 6 and was extradited to his homeland 10 days later, where he now faces as much as eight years in jail.

To contact the reporters on this story: Bo Nielsen in Copenhagen at bnielsen4@bloomberg.net; Christian Wienberg in Copenhagen at cwienberg@bloomberg.net

Last Updated: December 18, 2008 03:58 EST