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Back in the 1980s in India, when Ravi Subramanian was forging a plan to launch an information technology company in the U.S., he and family members were brainstorming for an American-sounding name. They came up with Silverline. Subramanian later told colleagues that it was based on the idea that every cloud has a silver lining. That can-do attitude helped propel Silverline Technologies from a fledgling technology-services firm run out of a broom closet in downtown Bombay to a global company with a two-story headquarters in Piscataway that boasted leather chairs, solid wood desks and stainless steel coffee tables. Subramanian’s timing was good for a while. He took his company public in the U.S. in mid-2000 just after the tech boom had crested, raising $125 million and making Silverline the first Indian-led company to be listed on the New York Stock Exchange. But the 43-year-old entrepreneur’s management skills and financial resources didn’t match his ambition. Over the last two years, the firm’s fortunes have cascaded downward, prodded by a tough economy, troubled acquisitions and numerous lawsuits. Silverline employees in the U.S. and India say their salaries weren’t paid and money that was ostensibly withheld for their 401(k) plans never made it there. Instead, they say, they were repeatedly bamboozled with partial salary payments and promises that everything would be made right. In April, Silverline Holdings, a company through which Subramanian controlled 12% of the stock in Silverline Technologies, filed a Chapter 11 petition in bankruptcy court in Newark. Last week, Maria DiConza, one of Subramanian’s lawyers, told U.S. Bankruptcy Judge Morris Stern at a hearing on the case that Silverline Technologies had stopped operating in the U.S. and is considering filing its own petition to start Chapter 7 liquidation proceedings. “He built a global organization at a time when many American companies couldn’t have done it. He just didn’t know when to quit,” says Larry Cox, Silverline’s former vice president in charge of human resources, of Subramanian. “I feel sorry for Ravi. He was trying to hold onto his life’s dream and he just got into quicksand.” Many former Silverline employees are far less sympathetic and are outraged at the way they were treated. More than 80% of the company’s workforce in the U.S., which totaled 756 people last November, were Indian nationals who had arrived in this country on H1B visas. If they lost their jobs at Silverline, they would have 30 days to find similar work or return to India. This made many employees reluctant to leave the company even when they weren’t being paid. “He [Subramanian] has made so many families suffer. This is mental terrorism,” says Arjun, a former Silverline employee who asked to be identified by his first name only. He says he is still owed $16,000. “People should not be able to come to any country, any place like this, and treat people badly. For what he has done, he should go to prison.” “Why didn’t the government go after these guys? Somebody needs to do some explaining,” says another former Silverline worker who claims to be out $18,000. Subramanian himself blames Silverline’s undoing on its 2001 purchase of another Indian-led IT company called SeraNova. “It was the wrong timing; it was too big for us,” Subramanian said during a brief interview outside bankruptcy court last week. “The margins didn’t really work out.” In February, the New Jersey Department of Labor docketed a judgment in Superior Court against Silverline for failure to pay more than $5.2 million in wages and benefits to employees. The company made one payment of $700,000 but still owes more than $4.5 million. Before its present troubles took hold, Silverline was seen as a pioneer among Indian technology-services companies in the U.S. It prospered during the 1990s by taking on labor-intensive software development jobs and having much of the work done by computer professionals in India who earned far less than their peers in the U.S. This enabled Silverline to undercut rivals and throw large numbers of professionals at a project on short notice. But Silverline’s bread-and-butter business of providing maintenance and software development for mainframe and so-called legacy systems had begun to seem unsexy by the turn of the century. Subramanian tried to keep pace with a rapid-fire series of acquisitions in 2000, spending much of the money he had raised in the company’s stock offering. His biggest move was the purchase of SeraNova in an all-stock deal valued at $99 million when it was announced in October 2000. SeraNova had been spun off earlier that year by Edison-based Intelligroup, another Indian-led technology-services firm. It specialized in software development for Web applications and had landed big-name clients such as American Express and Volkswagen of America. When the deal was announced, Silverline had annual sales of about $115 million compared with $85 million for SeraNova. The acquisition quickly went sour. By the time the deal closed in March 2001, Silverline’s stock price had plunged and the shares Intelligroup received were worth only $39 million. A little more than a year later, hard feelings produced a slew of lawsuits. Intelligroup and Silverline traded accusations of bad faith and sleazy dealing. “It just became a mess,” says Raj Koneru, SeraNova’s former CEO who left the company the day after the sale closed in March 2001. Koneru says SeraNova had been strapped for cash and had hoped for a financial boost from Silverline. Instead, Silverline turned out to have more debt than expected. “Over time, the debt they had with the banks and various individuals started coming and haunting them,” Koneru says. “They started missing their payments and they just burned through cash like crazy.” The SeraNova deal wasn’t an isolated case. Silverline’s 2001 purchase of EcommIT, a technology-services company based in Cedar Knolls, also ran into trouble. Sivaram Anbaransan, a former part-owner of the company, sued Silverline last January, saying it had reneged on an agreement to pay him $325,000 in Silverline stock for his interest in the company. Silverline countered in court papers that EcommIT wasn’t worth what it had appeared to be. Satish Dutt, the co-owner of EcommIT, took it back from Silverline late last year. In January 2001, Silverline opened a $40 million line of credit with HSBC Bank, a London-based global lender, and India’s Bank of Boronda. The company drew down $28 million then defaulted on the payments. HSBC sued last year in federal court in Manhattan and forced a settlement in which Silverline agreed to pay $14 million. To help raise the cash, Silverline sold one of its top client accounts, American Express, to Cognizant Technology Solutions of Paramus for $9.7 million. More than half the money went to pay off back salaries and benefits owed to some 300 Silverline workers who were transferred to Cognizant. Koneru calls the Silverline management team “very, very unprofessional” and not up to the job of running the combined companies. When two SeraNova executives, Rajiv Singh and Rajan Nair, took senior posts at Silverline, the moves caused further resentment. Even though Silverline was a public company, “internally it was like a family business,” Koneru recalls. Subramanian served as chairman and two of his brothers, Mohan and Krishna, served as directors. Until last year, Krishna was vice chairman. “We made a big mistake selling to these guys,” says Koneru. “They took a good thing and just destroyed it.” Cox, the former Silverline vice president, also traces the company’s troubles to the SeraNova deal. But he says SeraNova brought much bigger financial problems than Silverline had expected. “First of all, there was smoke and mirrors about what their revenues were, and then they refused to cut expenses.” Former Silverline insiders say there were problems integrating the staffs of the two companies and layoffs of some key personnel who had worked on client accounts also caused trouble. Some clients held up payments because they weren’t satisfied with the quality of the work they were getting. As Silverline’s problems mounted, a net profit of $26.6 million for the fiscal year ended March 31, 2001, turned into a net loss of $54.6 million the following year. Lately, Silverline shares have been trading for about $1.40 on the NYSE. In a court filing, Silverline Holdings listed assets of $11.3 million against liabilities of $32.15 million. Meanwhile, Lee Squitieri, a Manhattan attorney who sued Silverline Technologies last year on behalf of HSBC, has a separate class action suit pending on behalf of former employees. Squitieri says the company still has real estate and other assets in India, and its executives could be held personally liable if they are found to have withheld taxes from employees without forwarding them to the IRS. Subramanian has already begun retrenching. His financial problems forced him to stop work midway through an ambitious renovation of a home on a 13-acre Watchung property that includes a pond and a stable. His plans called for an eight-bedroom, eight-and-a-half bath house with a six-car garage. But Watchung officials say work ground to a halt more than a year ago and no one lives in the half-finished home. It is on the market for $3.99 million. Subramanian worked out a deal last month with the town to pay off $47,000 in back property taxes over six months. Township officials say he’s since whittled it down to $32,000. For now, he’s still looking for a silver lining. Rise and Fall of an Entrepreneur1991: Ravi Subramanian comes to the U.S. from India to set up a company that will provide information technology services to corporate customers.1992: Subramanian returns to India and launches Silverline Industries as a public company with shares traded on the Bombay stock exchange. It operates internationally as a provider of IT services.1995: Subramanian’s firm, operating in the U.S. under the name Infotech, wins its first big contract from First Data, the credit card payment processing company. More corporate clients follow.1999: Subramanian begins operating in the U.S. under the name Silverline Technologies. The company reports $85 million in revenue for 1999.June 2000: Silverline Technologies becomes the first Indian tech firm to be listed on the New York Stock Exchange. It goes public with an offering of American Depository Shares at $25 each, raising $125 million.October 2000: Silverline says it will buy SeraNova, an IT firm specializing in Web-related services, in an all-stock deal valued at $99 million.March 2001: The SeraNova acquisition closes but the deal’s value shrinks to $39 million due to a drop in Silverline’s stock price. 2002: Lawsuits claiming payment defaults are filed against Silverline by Intelligroup, Sovereign Bank and other creditors. Employees complain to the New Jersey Department of Labor that they are owed more than $5 million in back wages.October 2002: Silverline agrees to sell its American Express contract to Cognizant Technology Solutions of Paramus for $9.7 million to settle a lawsuit brought by HSBC Bank over an unpaid loan. November 2002: Silverline tries unsuccessfully to raise $16 million through a public offering of Global Depository Shares. Early 2003: Silverline shuts its U.S. operations.April 2003: Silverline Holdings, a Subramanian-controlled company that holds 12% of Silverline Technologies and owns its headquarters building in Piscataway, files a Chapter 11 petition in U.S. Bankruptcy Court in Newark.A Plunge Into red inkFiscal Year ended March 31, 2002 March 31, 2001 March 31,2000Revenues: $142.9 million $154.6 million 101.9 millionNet Income (Loss): ($54.6 million) $26.6 million $18.8 millionTotal Employees:* 1,729 2,600 1,275*data is for Silverline Technologies Ltd., Indian parent firm of Silverline Technologies, Inc.Source: company reports | email [email protected]