Sujata “Sue” Sachdeva – 11 Years in Prison – Every Choice Has A Consequence

November 22, 2010

No great surprise here – other than the fact that Sue Sachdeva got so little time for such a large crime. But, having been there I can promise readers that 11 years in prison – federal prison – will be a life changing event.  In my experience, there is no place where time moves more slowly!

As background, Sujata “Sue” Sachdeva, a former Koss Corp. executive who pleaded guilty to embezzling $34 million from the Milwaukee headphones maker was sentenced to 11 years in federal prison.  The company’s former vice president of finance, had pleaded guilty to using company funds to pay her personal bills for clothes, jewelry and other lavish items.

Facing up to 120 years, Sue got less than the guideline range of 16 to 20 years.

U.S. District Judge Lynn Adelman said he granted Sachdeva a degree of leniency because she cooperated with investigators from the very day FBI agents came to her home in 2009. Her “acceptance of responsibility and the genuineness of her remorse” were compelling factors, Adelman said.

She read a brief statement before sentencing in which she apologized to her family, friends and former Koss colleagues.

“I know you were deeply hurt by my dishonesty in ways I never imagined or intended,” she said, her voice cracking.

According to Washington Post reports – Sachdeva’s scheme was uncovered when the security department at American Express noticed her balances were being paid through large wire transfers originating from a Koss account.  American Express notified Michael Koss, the company’s chief executive, who entered Sachdeva’s office and found piles of women’s clothing, according to a federal complaint. Some clothes had price tags for more than $2,000 still attached.

Sachdeva’s attorneys said she has bipolar disorder and was driven to embezzle by a compulsive shopping disorder. They noted she never used most of her purchases, and often sent them straight to storage facilities because she had no room left in her home.

“This was compulsive behavior, not greed,” defense attorney Brian Kinstler said. “She didn’t want to be up to her ears in clothing that didn’t fit, with the price tags still on.”

Sachdeva has agreed to pay $34 million in restitution to Koss. Federal officials also seized most of her assets, including a 2007 Mercedes-Benz, jewelry, shoes and furs.

The question for readers is – do you think that Sue Sachdeva’s sentence was just?  Fair?  And, lastly how does Sachdeva plan on ever paying restitution of $34 million once she is released from prison some 9 1/2 years from now?

YOUR COMMENTS ARE WELCOME!

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Sujata “Sue” Sachdeva pleads Guilty and agrees to $34 million in Restitution!

July 29, 2010

From SIFY News:

A former Indian-American executive faces up to 20 years in jail after pleading guilty to stealing $34 million from stereo headphone manufacturer Koss Corporation for her ‘irrational and excessive buying sprees’.

Sujata Sachdeva, 46, a former vice president of finance at Koss Corporation, pleaded guilty to all the six counts of wire fraud, for which she was charged early this year, before a Milwaukee court in Wisconsin Tuesday.

US District Judge Lynn Adelman accepted her guilty plea to all six counts of felony fraud in connection with the federal government’s $34 million embezzlement case against her and set a sentencing date of Oct 22.

Each charge against Sachdeva carries a maximum penalty of 20 years in prison and a fine of $250,000. Each charge also carries a mandatory special assessment of $100 and a maximum term of supervised release to follow any term of confinement of up to five years.

She has also agreed to pay an estimated $34 million in restitution to Koss under a plea deal that calls for at least five years in prison, although prosecutors may recommend a much longer sentence.

Sachdeva has been free on a $50,000 signature bond since she was charged in December.

The government plans to auction more than 22,000 items of luxury clothing, shoes, jewellery, furs and art objects that Sachdeva bought with the stolen money. Koss will receive the proceeds of the auction. No date has been set for the online auction, which needs the approval of the court.

After the hearing, her attorney Michael F. Hart stood beside Sachdeva on the steps of the federal courthouse and read her statement, according to Milwaukee Sentinel Journal.

In it, Sachdeva, 46, said she most regrets the pain and public embarrassment she caused her husband and two young children. Ramesh Sachdeva, a paediatrician who is an executive with Children’s Hospital of Wisconsin, was in court Tuesday with his wife.

‘Ms. Sachdeva engaged in irrational and excessive buying sprees that escalated over time,’ the statement says. ‘When the bills piled up, she took money from her employer to pay for her purchases.’

‘A large portion of the funds were used to pay for items that Sue Sachdeva never possessed, clothes she never wore and items she never picked up.’

WHERE FROM HERE?

Well…this was a smart move on Sachdeva’s part.  Not only would her sentence have been worse if she had tried (like so many) to go to a jury trial, but the emotional stress would have been much more straining that it already is.  Likely, her prison sentence will be longer than the 5 years she is expecting, but shorter than the potential time she could face.

On the other hand, making $34 million in restitution…well I don’t see that happening, but?

YOUR COMMENTS ARE WELCOME!


Koss fires back! American Express is sued over Sachdeva Embezzlement! The only winners here – THE LAWYERS!

February 23, 2010

What a tangled web we weave.  Sue Sachdeva first embezzles millions (I mean a bunch) of dollars to support her (now claimed) medical condition (which make here innocent of her actions?).  Koss executives must have had their (Koss) headphones on while playing Guitar Hero to have missed such a massive fraud.  Grant Thornton, the CPA firm, says they aren’t liable for the loss cause they weren’t hired to evaluate internal controls (really?).  And, there is no doubt that any insurance company involved will say that they don’t have to pay a claim since other folks didn’t do what they were supposed to do.

With all that said… Koss would be out more money and Sue would be buying her spring wardrobe if it weren’t for the diligence of American Express who caught this in the first place.

Ah, but the story goes like this (no good dead goes unpunished) –

Koss Sues AMEX over Embezzlement Case

By Jay Sorgi

MILWAUKEE – The local headphone company Koss is suing American Express, claiming the credit card company failed to set up an anti-money laundering program.

Koss is blaming American Express for a lack of oversight in allowing former finance V-P Sue Sachdeva to embezzle tens of millions of dollars in company cash.

The suit seeks damages and compensation for the loss.

WHAT’S THE BASIS FOR THE AMEX SUIT?

The suit, filed Thursday in Maricopa County, Ariz., says American Express failed to live up to the requirements of the Bank Secrecy Act when it discovered that Sachdeva was embezzling money from Koss to pay her bills, but made a decision not to tell Koss immediately.

The Bank Secrecy Act requires financial institutions to have programs to detect and report suspicious activity that might be indicative of financial crimes.

American Express continued to process the payments for Sachdeva’s bills from Koss accounts, at the rate of $1 million per month, because Sachdeva was one of AmEx’s best customers and AmEx was profiting from her business, the suit claims.

As a result, Koss lost $20 million, the suit says. Koss is seeking unspecified punitive damages and compensation for the loss.

LOCAL RISK ASSESSMENT SPECIALIST INTERVIEW:

Deborah Bidwell is an identity theft risk management and fraud prevention specialist who lives in the greater Milwaukee area and a go to person for me in situations like this.  I had the opportunity to talk with her this a.m. and here are some of her comments:

What impact is this story having on the business community up in Milwaukee?

It has really rocked them to their core, and many are really scrambling to figure out what to do to avoid this happening to them.  They have lots of questions and the biggest is “how did this happen”?

So who does get the blame?

Ultimately the CEO who is trying to shift the blame to anyone besides him.

What about Sue Sachdeva?

She is guilty I am sure, BUT if the company is working to actively avoid this from happening in the first place she would never have been in the position of doing this to the company, her family and herself.

One thing we can’t do is change the KOSS situation.  That appears to be up to attorneys.  But, the question for other firms is how can they prevent this from happening to them?

At the risk of sounding self serving, firms would be well advised to have someone familiar with risk management assess where they are and what area(s) might be vulnerable to fraud. This should be done by someone other than your CPA, cause just like KOSS the CPA was too involved to catch it.

But shouldn’t the CPA catch something like this?

The CPA for Koss was only doing the audits for the SEC under the SOX Act.  They didnt take care of the day to day bill paying, or watching monthly bills or for that matter evaulate KOSS’s internal controls.

So just curious, how often do you get called on to do risk assessments and do companies really do that before they find there is a fraud?

Well…let’s say business has definitely seen a dramatic increase since so much fraud has come to light.  I consult with businesses in the US as well as a few in Europe helping them avoid fraud before it happens.  And frankly that is the key.  For many medium to smaller concerns, this really has not been a big issue till, well, all the fraudsters hit the news.  Now I’m getting calls for folks who want preventive medicine rather than a hospital visit after a massive fraud.  I suppose you know what I mean by that…?

Last Question – Since you are in the Milwaukee area, how can people get in touch with you if they want to discuss risk assessment?

They can reach me through my website: www.dlbandassociates.com, or simply give me a call at 262-945-7844.

FINAL COMMENTS:

As a business ethics and fraud prevention expert, I agree with Deborah about the need for preventive medicine.  Kinda cute how she put that.  From a practical perspective the cost to prevent a crime, like the one that KOSS Corp. has experienced and the (what I know will be massive) legal fees that follow, is well worth the investment.  For now, the only winners in this mess are the attorneys.

AS ALWAYS YOUR COMMENTS ARE WELCOME!


Koss and Sue Sachdeva’s Accounting debacle. Terrence Rice, a Milwaukee CPA, comments…

February 22, 2010

As a business ethics speaker and author…I find myself amazed at times with what comes up daily to write about.  Of course, to Milwaukee…the who Koss mess with Sue Sachdeva’s embezzlement is unique (to say the least) and creating quite a stir.  Not only does this reflect poorly on senior management, but also on the independent accounting firm.  But, of course, to top it off is the Sue’s claim on not being guilty due to a mental/emotional spending disorder.  That’s worth following this story in and of itself.  But…

Rarely when I write these entries do I get a response so well thought out as the one I received 30 or so minutes ago.  It was so well done that I asked the author – Mr. Terry Rice, CPA, if I might feature it in a new blog entry.  He was kind enough to say yes.  Read below and feel free to join in on the discussion.  For sure, we will have plenty to discuss for months to come…!

The Milwaukee business community is wondering how a company with $38 million in annual sales could have lost $30 million in an embezzlement.  This goes beyond being just a crime, it is an embarrassment.

The internal controls were lax, the separation of duties were lax, the audit committee was lax, the Grant Thornton auditing firm was lax, the CEO was lax and on and on.  Plenty of blame to go around.  The Koss Corporation and the Koss family had ultimate trust in their VP of Finance, Sue Sachdeva. She purchased expensive items using her own American Express account and then fraudulently wired Koss Corporation funds to pay the bills. The IRS will be knocking soon.  If the American Express fraud department hadn’t reported it, she would probably still be doing it. As I tell my clients, you cannot trust anyone.

In a 2007 interview, Michael Koss complained that the new costs associated with Sarbanes-Oxley were particularly galling to his family.  The problem is that Sarbanes-Oxley did not go far enough.  Sarbanes-Oxley, for all its reputation as a hard-hitting law, fails to correct a crucial accounting system weakness: the potential for what is called the “moral seduction” of outside auditors.  Executives still have too much control over the hiring and firing of auditors, which discourages accountants from providing failing critical reports. A company’s culture between auditors and management usually becomes entrenched.
To see the real-world consequences here, just look at Enron.  Its auditor, Arthur Andersen, came to identify so strongly with the client that its judgment was compromised, and the demise of one led to the demise of the other.

SarbOx was supposed to change all that.  Yet the law leaves in place strong incentives for auditors to please clients even as it mandates complex new rules that are supposed to make corporate books more credible.  The system needs to be changed.  The auditors need to make independent assessments instead of just ratifying clients’ accounting. The auditors need to be hired by boards rather than company executives and be retained for a fixed period without the chance of being rehired.

In the 2007 interview, Koss said that “it’s annoying having to deal with this extra layer of bureaucracy.  Small companies like ours are spending hours in auditing committees that would be better spent on strategic planning.”  Sarbanes-Oxley requires that there be an audit committee that is independent of management. There had to be some indication in the Koss numbers that something was wrong.  The other executives and the members of the board of directors had a duty to pay closer attention to the numbers. If the audit committee is filled with laymen or buddies of the management, business will continue as usual.

The audit committee is uniquely suited to assess risk and internal financial controls and to ensure that company strategy and finances are aligned.  It is time for this committee to assess its unique role as messenger to the rest of the board of directors and to shareholders on all matters of risk management and financial-reporting judgments and to bolster trust. Brilliant and curious individuals are what audit committees desperately need, especially during these times of economic turmoil. The audit committee needs to concentrate on protecting shareholders from misleading accounting and outright fraud.

The audit committee of Koss Corporation and the outside auditing firm, Grant Thornton, failed in their responsibilities.  Don’t let your company be the next Koss Corporation.

Terrence Rice is a Milwaukee CPA and is author of www.bankembezzlement.blogspot.com and www.churchembezzlement.blogspot.com

A BIG TIME OUT HERE…now as I was preparing to post this entry I saw an article that knocked my socks off.  Article headline:  GRANT THORNTON FIRES BACK AT KOSS CORP.  The article in the Business Journal of Milwaukee states:

After its firing as outside auditor for Koss Corp., which is reeling from a $31 million embezzlement case, Grant Thornton LLP fired back that it was never hired to evaluate “internal controls” at Koss.

Allow me to show my ignorance, but as a former CPA (tax partner in a firm in NC) I thought that an AUDIT required and included an evaluation of the company’s system of internal controls as a basis or foundation for the opinion that they render.  IF the internal controls were lacking, either the CPA firm would have to do more work or state that an opinion as to the fairness of the firms records could not be issued.  (Layman’s terms).  So please somebody tell me what I’m missing! The excuse for not detecting a MAJOR FRAUD was we weren’t hired to evaluate the “internal contols”… REALLY? The full Business Journal article is here.  I’m speechless…  Well back to Terry…

Terry…thanks for following the story (although I imagine that it’s hard not to up in your neck of the woods).  More important thank you for your thoughful comment.

IF YOU WISH TO COMMENT…feel free to do so…AFTER ALL YOUR COMMENTS ARE ENCOURAGED AND WELCOME.


Sue Sachdeva and Koss Corp – Can you hear the lawsuits coming?

February 22, 2010

No great surprise, but if you put some Koss headphones on you’ll begin to hear the music of attorney offices ringing with lawsuits that will be filed as a result of Sue’s, shall we call them, indiscretions.

According to a BizJournal report, the first in what is expected to be a series of lawsuits against the company’s executives, directors and outside auditor for failing to detect the scheme has been filed.

According to the BizJournal report (the full story is here):

The suit was filed this week on behalf of shareholder Myriam Ruiz of Milwaukee in Milwaukee County Circuit Court. The defendants are Koss Corp. president and CEO Michael Koss, his father company founder John Koss Sr., Koss Corp. directors, fired vice president of finance Sujata “Sue” Sachdeva and the company’s fired outside auditor Grant Thornton LLP.

PUT IN PERSPECTIVE – as a business ethics author and speaker I predict the following:

Sue will plead innocent by reason of “insanity” – an insane need to spend money on a lifestyle she couldn’t afford.  Now if she wins with that defense – God help us!

Michael Koss will be accused on listening to too much music on his company’s wonderful headsets and not paying enough attention to the day to day operations of the business.  Perhaps those who sue think that there is a big fat insurance policy that will make them whole (financially).

Grant Thornton, LLP is gotta be feeling sick this tax season as all this bring their name up in less than a favorable light.  Bet ya that their errors and omissions insurance is going up or the carrier has canceled them for the future.  Funny, but insurance companies like taking your premium, but when it comes to paying out – well that’s a different matter.

Then there’s the KOSS insurance (assuming there is Koss E and O insurance).  Now, the insurance company is already preparing their defense as to why they should not have to pay for Sue’s theft.  They will say that Michael and Grant Thronton didn’t do their job and as a result they should not have to pay.

KEEP IN MIND…the above is speculation.  TRUTH will be revealed as this story unfolds.

OF COURSE, YOUR COMMENTS ARE WELCOME.


Sujata “Sue” Sachdeva pleads not guilty by reason of a “Spending Disorder?”

February 4, 2010

With her attorney again signaling that he will mount a mental-illness defense, a former Koss Corp. executive pleaded not guilty Friday to accusations that she embezzled $31 million from her longtime employer.

Sujata “Sue” Sachdeva, 46, of Mequon, Wisconsin, pleaded not guilty yesterday to charges she embezzled as much as $31 million from Koss Corporation, a publicly traded head phone manufacturer where she had been employed as Vice President of Finance, Secretary, and Principal Accounting Officer. According to the indictment, Sachdeva authorized numerous massive wire transfers of funds from company bank accounts to pay for her American Express credit card bills and obtained cashier’s checks to pay for personal expenses, among other things. The scheme dates back to at least 2004, according to reports.

Michael F. Hart, her Attorney, said in a brief interview, “As this case proceeds . . . we intend to show that Ms. Sachdeva’s mental and emotional health played a significant role in her conduct.”

Asked whether that was the basis for Friday’s not guilty plea, Hart declined additional comment. Later, he issued a statement reiterating his remarks in the interview and added, “This is the beginning of an ongoing process, and our focus will be on the arguments we make in court. However, the issues of Ms. Sachdeva’s mental and emotional health are essential to this case.”

In court, Hart agreed to a new condition of release requested by prosecutors that prevents Sachdeva from disposing of assets that might be confiscated if she is convicted. According to the indictment, the government will attempt to seize her $800,000 Mequon home, her 2007 Mercedes Benz E350, a Hawaiian vacation timeshare and other assets if she is convicted.

The U.S. Marshals Service also is working to inventory approximately 22,000 items FBI agents gathered at the Sachdeva home and from local luxury stores and resale shops.

Several stores kept paid-for clothing in their storerooms for Sachdeva. She also sold thousands of dollars’ worth of merchandise through local resale shops, according to several retailers.  The government expects to sell the items, probably in an online auction, and return the proceeds to Koss.

Sachdeva also was ordered Friday to refrain from using alcohol and to submit to drug and alcohol testing.

If Sachdeva is convicted, she faces up to 120 years in prison plus fines, restitution and forfeiture of merchandise.

Her trial is scheduled for April 19th.

COMMENTARY:

I know there is a vast difference, but Sachdeva’s defense is a bit like the fellow who killed the abortion doctor – there is a justifiable reason?  Clearly stated…I am unaware that using a spending disorder as a defense has been successful in achieving a verdict of “not guilty”.   Certainly this case will be watched closely, as there are many white collar criminals who have either embezzled or created Ponzi schemes and lived lavish lifestyles who would welcome the opportunity to be found not guilty by reason of a “spending disorder.”  If this defense wins…I would suspect that Bernie Madoff would be regretting his guilty plea.

IF I were a betting man, I’d bet she’ll face time in prison…but?

YOUR COMMENTS WELCOME!


Sujata Sachdeva – Koss former Executive Charged in $31 Million Fraud – Mental Illness Likely Defense

January 21, 2010

United States Attorney James L. Santelle announced that a grand jury sitting in Milwaukee returned a six-count indictment charging Sujata Sachdeva (46) of Mequon, who is also known as Sue Sachdeva, with six counts of wire fraud.  Ms. Sachdeva is the former Vice President of Finance, Secretary, and Principal Accounting Officer for Koss Corporation, a publicly traded company located in Milwaukee, Wisconsin.

The indictment alleges that Sachdeva used her position at Koss to fraudulently obtain more than $31 million from Koss, which she used to purchase personal items and pay for personal expenses.  According to the indictment, Sachdeva authorized numerous wire transfers of funds from bank accounts maintained by Koss to pay for her American Express credit card bills.  In addition, Sachdeva used money from Koss’s bank accounts to fund numerous cashier’s checks, which she also used to pay her personal expenses.  Sachdeva used the money she fraudulently obtained from Koss to purchase personal items including women’s clothing, furs, purses, shoes, jewelry, automobiles, china, statues, and other household furnishings.  Sachdeva also used the money to pay for hotels, airline tickets, and other travel expenses for herself and others, to pay for renovations and improvements to her home, and to compensate individuals providing personal services to her and her family.

According to the indictment, Sachdeva sought to conceal her fraud by directing other Koss employees to make numerous fraudulent entries in Koss’s books and records to make it appear that Sachdeva’s fraudulent transfers were legitimate business transactions.  Sachdeva directed Koss employees to conceal her fraudulent transfers as well as the fraudulent entries in Koss’s books and records from Koss’s management and auditors.

According to United States Attorney James L. Santelle “this case is one of the largest embezzlement cases ever brought in this district, and demonstrates the ongoing commitment of this office and the FBI to investigate and prosecute white collar offenses”.
Each count of the indictment carries a maximum possible penalty of up to 20 years in prison and a fine of up to $250,000.  Sachdeva, therefore, faces a total maximum penalty of up to 120 years in prison and fines of up to $1.5 million, plus forfeiture of the items identified in the indictment and restitution.

WELL NOW WITH THAT ALL SAID…WHY?

According to her attorney, Michael F. Hart, Esq., principal in the law firm of Kohler & Hart, LLP, and a prominent criminal defense attorney in Milwaukee, one defense planned for Sachdeva is mental health. Hart is quoted as saying, “We intend to show that mental health issues played a substantial role in Ms. Sachdeva’s conduct.”

What kind of mental health issue(s) would he be referring to?  My guess…Compulsive Shopping Addiction or Spending Addiction.  The following is a reprint from a popular web site on the subject (the full article is here).

Most of us who suffer from compulsive shopping addiction (sometimes called spending addiction) are unaware of the problem. After all, everything around us seems to be saying, “Buy, buy, buy!” So…we do! We usually discover the problem only when we run out of money. Then, sadly, we think it’s an income problem. The problem isn’t income…it’s being out of control with the outgo. We addicts tend to spend money to compensate for areas in our lives where we are emotionally out of control or damaged. I’m sure the millionaire’s wife felt neglected for all the years he was pursuing his business goals while she was left with their several children to manage. The problem is triggered by emotion and shows itself as spending but we have to understand the cause of compulsive shopping addiction in order to get a handle on the solution.

Compulsive Shopping Cause

Since most people believe the problem is income, they mis-identify the cause as something outside of themselves; their job, boss, spouse, taxes, the creditors, prices, etc. This form of denial effectively blocks any kind of solution, locking us into an ever deepening problem. Though spending is usually the main symptom, and this, triggered by emotion, the cause goes much deeper. When we continue to pile up spending, the cause is usually rooted in the Spending Cycle: 1. We start with an emptiness, or negative self-esteem; a feeling of incompleteness. 2. Signals all around us tell us if we had some thing, we’d be seen as more important, successful, loveable, or complete, etc. The signals come from family, friends, co-workers, TV, radio, the Internet…anyone who has influence over us. 3. We spend to get that success feeling, sharing news of our shrewd acquisition with anyone who will say, “oooooooo.” 4. When the bills come in we feel even more incomplete and powerless than before, starting the cycle all over again. Until we own the cause as something within us, we will never have a solution. The actual cause of compulsive shopping addiction, then, is that feeling of emptiness and low self-esteem. Solving this incompleteness is key to finding the solution to compulsive shopping addiction.

Now, assuming this is a route the defense is taking, will it be successful?  Only time will tell, but it would appear from a distance look at the facts, it would be hard to argue that she was ‘mentally’ screwed up somehow considering the lifestyle and theft that supported it.  She was educated, so there had to be something other than – oops I didn’t know it was wrong as a defense.  The interesting side of this – is whether there is legal support to find her not guilty by reason of mental insanity?

Now, I’m not a lawyer (I’m a business ethics speaker)…so I would welcome those who are to share their opinions regarding using Compulsive Spending Addiction as a defense.

YOUR COMMENTS ARE WELCOME!