A federal judge has approved the settlement of the Securities and Exchange Commission’s complaint against headphone maker Koss Corporation and its CEO and former CFO Michael Koss.

The SEC said Friday that on Feb. 22, U.S. District Judge Rudolph T. Randa of the Eastern District of Wisconsin approved the settlement of the SEC’s complaint. The case is based on Koss Corporation’s preparation of materially inaccurate financial statements, book and records, and lack of adequate internal controls from fiscal years 2005 through 2009. The SEC responded to a letter dated Dec. 20, 2011, in which Randa requested that the SEC address concerns about the proposed settlement. Based on the SEC’s response, Judge Randa stated the court was “satisfied that the injunctions are sufficiently specific… [and] that the proposed final judgments are fair, reasonable, adequate, and in the public interest.”

The injunctive orders enjoin Koss from violating and Michael J. Koss from aiding and abetting violations of the reporting, books and records and internal controls provisions of the federal securities laws and Michael J. Koss from violating the certification provision. Michael J. Koss was also ordered to reimburse Koss $242,419 in cash and 160,000 options in accordance with the Sarbanes-Oxley Act. This bonus reimbursement, together with his previous voluntary reimbursement of $208,895 in bonuses to Koss Corporation, represents his entire fiscal year 2008, 2009 and 2010 incentive bonuses.

Koss fired its vice president of finance, Sujata Sachdeva, in late 2009 after federal prosecutors charged her with embezzling millions of dollars from the company and using the money for shopping sprees around Milwaukee buying up jewelry, fur coats and fashions (see Headphone Maker Hears the Sound of Accountng Fraud).

Koss only learned of the embezzlement after American Express informed the company of several expensive wire transfers that Sachdeva made from the company’s bank account to her personal Amex account. When it checked her office, it found some of the items still in their shopping bags with the expensive price tags attached.

Sachdeva later pleaded guilty to embezzling about $34 million from the company and was sentenced to 11 years in prison, followed by three years of supervised release. She was also ordered to pay $34 million in restitution and she was suspended from appearing or practicing as an accounting before the SEC (see SEC Suspends Former Koss VP from Practice).

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