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March 29, 1996

GIGASTORAGE EFFORT TO REVIVE BULL BELFORT MIRED IN FRAUD CHARGES, BITTER ACRIMONY

By CBR Staff Writer

Legal authorities in the region of Belfort put the president of the territory’s regional council into temporary custody earlier this month, making him the second politician to be suspected of fraud in the establishment of a hard-disk manufacturing venture in the economically beleaguered region of eastern France. With the detention of Christian Proust, whom Judge Christine Schlumberger reproached for complicity in a fraud, the affair of Gigastorage has taken a decidedly political turn. The judge imprisoned Jean-Pierre Maillot, director of the Economic Development Agency of Belfort & Region on charges of fraud on March 6, after 48 hours of questioning and a seizure of documents at the agency. Bisser Dimitrov, the chief executive of Gigastorage and former chief executive of IBM Corp’s Bulgarian subsidiary, has been in prison since February 8, charged with fraud and misuse of public funds and confidence. Meanwhile, in the former Bull Peripheriques factory in Belfort, 32 employees manufacture drives at a slower-than-expected pace while the authorities try to sort fact from fiction.

Presumed guilty

Ironically, reports Liberation, Proust had asked Judge Schlumberger for an audience to tell all he knew about Gigastorage from his role as president of Sempat, the public organization that manages Belfort’s industrial sites. Proust said he wanted to provide the judge with explanations that she may not have had the time to get, and to convince her to end a case without any basis, Before his audience, he said, If she insists on continuing, this will become a political case made against the Territory of Belfort, Jean-Pierre Chevenement, deputy mayor of Belfort and another key figure in founding Gigastorage, blasted the judge’s decision, in Les Echos on Monday. From now on, any elected official, because he is an elected official, is presumed guilty, and every president of a general council, every president of a regional council, every mayor can be thrown in prison when all they did was their duty in the service of creating employment, he said. The byzantine tale began in February 1994, when Maillot persuaded Dimitrov to set up his hard disk manufacturing venture at the Compagnie des Machines Bull SA factory, which had just closed and laid off 1,400 people. Maillot had little reason to doubt Dimitrov’s credentials; in addition to IBM, he had worked five years in California, managing a research lab in Los Gatos. The lab had developed a high-capacity disk drive that had a strong market potential – if it got to market quickly. Dimitrov chose Belfort, where the Belfort Development Agency promised enormous financial support from local agencies. The company, Gigastorage International SA, was created in April, 1994, with Maillot on its board. In October of that year, Dimitrov’s California research center became BMI, Belfort Memory International, a wholly-owned subsidiary of Gigastorage. The director of Sybel, the Society for the Investment & Industrialization of Belfort, which was charged with resettling former Bull Peripheriques employees, issued a report favorable to BMI in November 1994. Maillot, Proust and Chevenement visited the lab in January 1995 to check on the foundations of the enterprise and were impressed enough to become shareholders in March, along with two Hungarian banks. Indeed, the local Belfort authorities invested approximately $2m, mostly in the form of loans, for the construction of clean rooms. The national agency charged with promoting economic activity in French territories, DATAR, awarded Gigastorage a bonus of approximately $2.7m. Then came the episode of the Malaysian monitors. In January 1996, Dimitrov asked the prefect of the region, Jacques Reiller, to approve 50-odd Malaysian technicians and specialists joining Gigastorage. Dimitrov said he needed them as monitors and, most of all, to honor an order for 40,000 disks that he had won from a German manufacturer.

By Marsha Johnston

At $185 per disk, the contract was worth approximately $7m, and the prefect saw no re

ason to refuse. Shortly thereafter, however, Reiller received a report from Tracfin, the financial division of French customs, that alerted him to suspicious changes in equity at Gigastorage. According to Liberation, the report said that, of the approximately $4m already invested, Gigastorage itself had benefited from only $200,000, the rest being sent directly to California. At the end of January, 47 Malaysians, employees of Gigastorage but without job contracts or visas, were turned back at the German border. The same day, Chevenement simply said it was an unfortunate occurrence, but the prefect definitively refused entry for the Malaysians on February 1 and the flew home a few days later. Dimitrov did not give up, however, demanding authorizations for 26 foreign technicians. The prefecture allowed him only three. Upon his return to Belfort on February 8, he was arrested in front of Maillot’s agency, interrogated and imprisoned. The chief executive’s imprisonment seemed to set off the Bulgarian press, which began diatribes against the former member of the Communist party machine, accusing him (without proof) of having served the KGB and of being a spy. He did spend several days in prison on accusations of bribery, of which he was subsequently cleared. In the meantime, Gigastorage’s board of directors has twice passed a vote of confidence in Dimitrov, whose latest request for release was rejected on March 4. Financial investigators have meanwhile seized documents at Dimitrov’s Belfort home. BMI, they say, is an empty shell around which several post boxes received money coming from a capital-raising exercise voted in September 1995. Their investigation also seems preoccupied with a payment to Gigastorage of approximately $500,000, an advance on the government bonus for choosing the region, in exchange for equipment that Liberation does not identify. Due to its status as an association, the Belfort Development Agency could not write off the value-added tax on the purchase, so it asked Proust to make the purchase in his name, through Sempat. Despite the fact that the agency today owns property that it says it paid for, investigators charged Maillot with fraud because the equipment was not delivered until two months after the payment. In Les Echos last week, Chevenement expresses his indignation.

Find themselves in prison

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The lead magistrate has understood nothing of the mechanism of compensation that was set up after the disappearance of Bull Peripheriques, he said. Sybel, he explained, was brought in 1992, as the legally authorized agent, to manage approximately $8m. A third of the money came from the French state, a third from Bull and a third from local agencies, through the economic development agency run by Maillot. These funds, all of which were separate accounts, cannot be paid out except by the vote of a committee that includes the prefect, the general treasurer and the president of the general council, he said. And their decision must be ratified by a board of directors, on which I sit. It was to facilitate the start-up of Gigastorage, at the time that its territorial bonus was granted [it was expected to arrive on October 23 1995, but didn’t come through until November 7] that Christian Proust went through Sempat, the manager of Belfort’s assets, to pay out funds from the Belfort Development Agency that had been set aside for that, he said. For his part, Proust declared in an interview on Monday last week in the regional paper The Eastern Republican that an investigation requested by Sybel and conducted by Arthur Andersen in the US and France demonstrates the economic reality of the project and proves that all of the funds used were spent in conformity with the social objective. The worst part, says Chevenement in Les Echos, is yet to come. The attitude of the judge, he says, who refuses to take into account the social and economic context of the case, will surely cause foreign investors to think twice, not only about our region, but throughout the country, when they run the ri

sk, at all times and at the whim of a single judge, to find themselves in prison.

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