Did the 'Enron of Norway' Pull a Fast One on Microsoft?

 

Even back in January when Microsoft (MSFT) agreed to pay $1.2 billion for enterprise search company Fast Search & Transfer, it was mired in an accounting scandal and trading in its stock had been suspended. Its aggressive accounting for phantom deals that never materialized earned it the moniker the “Enron of Norway.” But more sordid details keep coming out from some tenacious reporting by the Norwegian press.

The latest account comes in the June 28 issue of the Norwegian magazine Dagens Næringsliv. In an article (in Norwegian) by Trond Sundnes, Dagens Næringsliv, Gøran Skaalmo, the magazine details how the Norwegian company booked free software trials as revenues, and how its executives set up shell corporations for allegedly self-dealing purposes. A translated version of the article (embedded below) is making the rounds among Fast’s competitors and inside Microsoft itself.

The problems at Fast were financial in nature and tied to an overly aggressive sales culture, which arguably Microsoft can fix. But it does point to a certain blindness on the part of Microsoft, or at least a willingness to look the other way, in its obsessive quest to become a player in search (see Yahoo and Powerset). It also raises questions about Fast’s underlying search technology. If Fast was having trouble closing deals for its products, how good can its technology really be?

According to the article, Fast had booked $50 million in fake revenue, $20 million in fictional contracts, and former top executives closely linked to CEO Markus Lervik siphoned off $6 million to shell companies they controlled. Lervik continues to lead the business and is currently the vice president for enterprise search at Microsoft.

Some of the details from the article include:

—The company had an aggressive practice of giving enterprise customers free trial periods and marking them down as tentative deals.

—One of these was a large $18 million deal with Australian Telecom company Telstra that the company recognized as revenues in late 2006. But the deal then failed to materialize.

—A second deal for which Fast never got paid was with Accoona, another shady search company.

—An audit uncovered unauthorized payments to a shell company in Fort Myers, Florida called Archtech that is owned by a former Fast VP, Peter Bauert and Fasts’s former CFO Ali Riaz (through yet another company he controls called Bluebird Collabo). That’s Riaz in the Audi pictured above.

Lervik never responded to repeated requests for comment, but Microsoft did. It sent adjusted annual reports for 2006 and 2007 which noted that over 30 million Norwegian Kroner ($6 million) was “irregularly” paid and “wrongly approved” to:

. . . companies owned or controlled by persons who at the time of the transactions were closely related parties.

That is an apparent reference to Archtech and other shell companies that were supposedly reselling Fast software. The problem, according to the the documents Microsoft provided, was that these related companies “purchased” $3.5 million worth of software licenses for which Fast was never actually paid.

I always wondered what the “transfer” part of Fast Search & Transfer referred to.

Original article

Comments

[yohoho]

This posts makes it crystal clear that you are not a journalist. You say things like "another shady search company" without any explanation. And that is your style throughout this entire post.

Its one thing to share with readers the questions from a Norwegian newspaper, but its another to add your own adjectives and to offer it all up as findings of fact.

[searchguru]

Journalist or not, his reporting is spot on.

Re Accoona: check out www.nytimes.com/2007/0...

[yohoho]

The facts are debatable, but calling this 'reporting' is not. Its indirect and sensational only.

[GaryD]

Yohoho: "The facts are debatable"? Facts are facts, unless you are a neocon. You also commited a common grammatical error of confusing the possessive "its" with contraction "it's". Odd for someone who fancies himself an expert on reporting.

[jse17]

Hey, why permit “FACTS” to interrupt a perfectly illogical argument!

[cal48koho]

there are a lot of reasons not to buy microsoft any more(I bought my first share in 1988 and sold my last share in 2005). This is just one more reason to avoid a company whose growth story is toast.

[Augustus]

Facts are FACTS, unless you are a follower of the O'Bama Messiah.
WE. WANT. SOMETHING. HERE. NOW.

How better for Bauert and Riaz to accomplish that than to set up a couple of fake companies and loot the one where they were employed. Those sucker stockholders did not deserve to have a fair deal. They were just investing hoping to make money from their investment. The O'Bama Messiah has declared that to be just so UGLY.

[notsosmart]

never really thought this would happen in "scam"danavi... there any place left with honesty & ethics??

[BioInvestor]

yohoho, you're uninformed as to what SeekingAlpha is about. This site is not designed for journalists; it's a site where people give opinion and analysis on, among other things, publicly trade companies. You owe the author--and the rest of this community--an apology.



On July 4, yohoho wrote:


The facts are debatable, but calling this 'reporting' is not. Its indirect and sensational only.

[notsosmart]

true-not a reporting site or correct spelling site.

[PK deC'ville]

@ GaryD

Denying legitimacy because of grammar (its vs it's) is so infantile.

Please stop.

[lars2]

Who are the auditors? The bankers? The lawyers?

Send lawyers, guns, and money.....

[theinvestingspeculator]

I am surpised Microsoft got caught on this one. I guess it was just small change.

[balois]

SA: It's funny how differently its raison d'être is defined by its readers whether it's journalism or raconteurism or whatever its purpose. Main point: It's factual, it's informative. And I enjoy its format.

[yohoho]

"Odd for someone who fancies himself an expert on reporting."

Save the proper grammer for your lectures of 50+ year old people... the last generation concerned with such trivial things.

"Facts are debatable". Let me clarify. I should have said "The Facts in the linked story are debatable". The story that searchguru linked to is FULLY DEBATABLE. Those aren't facts.

[yohoho]

"You owe the author--and the rest of this community--an apology."

I left your apology in the big white bowl beside my shower. Its all yours. Have at it.