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!


Sujata Sachdeva’s Embezzlement from Koss – Is Koss At Fault?

January 21, 2010

Sujata Sachdeva – former vice president of finance and secretary allegedly embezzled nearly $31 million from the company through unauthorized purchases.  The result – well a domino effect that has caused Koss, the company is known for manufacturing headphones and audio-related equipment to halt it’s stock trading.  The ripple effect continues with restatement of financial statements for multiple years back and, of course, Sachdeva has been indicted.  Likewise, Koss has now fired Grant Thornton LLP, its independent auditors, and is now working to fix a mess that could leave the company near bankruptcy.  (You can bet that Grant Thornton’s errors and omissions carrier has been notified of a prospective claim).

The question here is – who is at fault or shares responsibility in this massive financial scandal.

Now, I can hear folks (as you read) saying, “Dummy, Sachdeva – obviously.  She’s the one who embezzled the money and spent it on a lavish lifestyle.”  And, frankly, to most that is obvious.  But, the larger question is – how does a person who made approximately $200,000 per year live a lifestyle like she lived and no one in the company stop and take notice asking – HOW DOES SHE DO THAT?

PERSONAL EXAMPLE: (Note: I am not proud of the following, but it serves as an excellent example and today I use my personal experience to help others with ethical choices and fraud prevention).

As a CPA, in the mid-’80’s, I embezzled money from clients trust funds.  The funds were used for a lavish lifestyle – expensive cars, expensive home, expensive clothes, etc.  Now, having inadequate internal controls, I saw a way to perpetrate my fraud and did so for a number of years.  Of course, every choice has a consequence and like, Bernie Madoff, there was a time when a card was pulled from the house of cards I built and they all came tumbling down.

People asked…once they found out I was a liar and thief, what did you do with the money.  Then, as if a veil had been lifted, they looked around and there it was – spent on my material surroundings.

The question that arose then was – how was it that my partners in the CPA firm who know my income – along with their – didn’t question how I was able to live such an extravagant lifestyle when they couldn’t afford to do the same?  Was it possible that the fraud could have been caught or stopped if simple questions had been asked?

THE KOSS QUESTION:

According to published reports, it was American Express that helped catch Sachdeva’s activities. Amex noticed that Sachdeva was paying for large balances with wire transfers from a Koss account.  Dumb move, but most who create a fraud make dumb moves at some point.

BizJournals is reporting that two East Coast law firms are preparing class-action lawsuits against Koss for Sachdeva’s actions. Specifically, the problem at hand is the aforementioned accounting issues that date back to 2005. If the suits go through, Koss may find itself too weak to continue as a company and may be forced to liquidate in order to meet its obligations.

What liability does Koss have?  Are they responsible for sufficient internal controls to prevent an embezzlement such as this?  Will others be indicted as co-conspirators?  Should Senior Management (outside of Sachdeva) have questioned her lifestyle vs. her income?

It’s easy to blame Sachdeva – she allegedly did steal the money – but there is a greater question that faces Koss management – what should they have done or questioned to prevent such a multiyear theft?

YOUR COMMENTS ARE WELCOME!