The Securities and Exchange Commission has charged two former senior accounting professionals at headphone maker Koss Corp. with accounting fraud, books-and-records violations, and related misconduct arising from the embezzlement of more than $30 million from the company.
The SEC alleges that Sujata Sachdeva, who was the vice president of finance and principal accounting officer at Milwaukee-based Koss, stole money from company accounts to make millions of dollars in payments on her personal credit card and for other extravagant personal purchases from luxury retailers (see Headphone Maker Hears the Sound of Accounting Fraud).
With the assistance of Koss senior accountant Julie Mulvaney, Sachdeva concealed the theft on Kosss balance sheet and income statement by overstating assets, expenses, and cost of sales, and by understating liabilities and sales (see Koss Acknowledges Accounting Department Collusion). Based on the fraudulent records prepared by Sachdeva and Mulvaney, Koss prepared materially false financial statements and filed materially false current, quarterly, and annual reports with the SEC.
Sachdeva brazenly stole millions from Koss Corporation with Mulvaneys assistance and then used crooked accounting to cover up the theft, said Merri Jo Gillette, director of the SECs Chicago regional office. Sachdeva and Mulvaney abused their positions of trust and defrauded Koss shareholders who rely upon corporate filings for accurate information about the companys financial condition.
According to the SECs complaint, filed in U.S. District Court for the Eastern District of Wisconsin, the scheme began in 2004 and lasted through December 2009. After discovering the embezzlement, Koss amended and restated its financial statements for fiscal years 2008 and 2009 and the first three quarters of fiscal year 2010. Both Sachdeva and Mulvaney have been terminated by the company.
The SECs complaint alleges that Sachdeva, a resident of Mequon, Wisc., embezzled funds from company accounts through a variety of means, including cashiers checks, unauthorized wire transfers, and unauthorized payments from petty cash. Sachdeva fraudulently authorized the issuance of more than 500 cashiers checks totaling more than $15 million.
She used them to make approximately $10 million in payments to American Express for her personal credit card, and also used them to make direct payments to luxury retailers. At times, Sachdeva used acronyms in an attempt to conceal the identities of the check recipients such as N.M. Inc. for Neiman Marcus and S.F.A. Inc. for Saks Fifth Avenue.
According to the SECs complaint, Sachdeva used the embezzled funds to finance an extravagant lifestyle, including prolific purchases of designer clothes, furs, purses, shoes, and jewelry as well as china, statues, and household furnishings. She also used the stolen funds to buy automobiles, pay for airline tickets and hotels during personal travel, and finance home improvements and renovations. Meanwhile Mulvaney, who lives in Milwaukee, concealed and facilitated the theft by preparing false journal entries to disguise Sachdevas misappropriation of funds.
The SECs complaint charges Sachdeva with violations of the antifraud provisions of the federal securities laws and charges both Sachdeva and Mulvaney with violations of the reporting, books and records and internal control provisions of the federal securities laws.
The SEC seeks a permanent injunction, disgorgement of ill-gotten gains and financial penalties against Sachdeva and Mulvaney, and an order barring Sachdeva from serving as an officer or director of a public company.
Sachdeva entered into a plea agreement with the U.S. Attorneys Office for the Eastern District of Wisconsin on July 27, 2010, in a parallel criminal proceeding and pled guilty to six counts of wire fraud. Sachdeva admitted her multi-million-dollar theft from the company and her scheme to falsify the companys accounting records to hide her embezzlement. Sachdeva is scheduled to be sentenced on Nov. 18, 2010.
The SECs investigation was conducted by James Davidson, Kara Washington, Michael Cabonargi and Donald Ryba of the SECs Chicago Regional Office. The investigation is continuing. The SEC acknowledged the assistance of the U.S. Attorneys Office for the Eastern District of Wisconsin in this matter.
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