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!


White Collar Crime hard to Deter? Perhaps we’re trying the wrong approach says Business Ethics Speaker Chuck Gallagher

February 23, 2010

How do companies deter White Collar Crime?

With media reports filled with stories of “white collar crime” such as the developing Koss embezzlement story and the on-going reports related to Allen Stanford and recently sentenced Bernie Madoff, it’s no wonder that organizations are seeking to find deterrents to this seemingly growing phenomenon.

As I prepare to address a group in just hours, I came across this article in the Charleston Regional Business Journal and it struck me – “We’re going about this all wrong!”  But, before I suggest what’s right let’s look at excerpts from the article featured below.  The whole article is here:

Law school panelists: White collar crime hard to deter

By Andy Owens
aowens@scbiznews.com
Published Feb. 22, 2010

Crime pays, at least if you’re a midlevel executive wearing a white collar.

Panelists at a symposium on crime and punishment said that fraudsters find the risk of being caught typically worth the potential reward for all but the most top-level executives.

Using Enron and WorldCom, along with more recent financial fraud, as examples, the panelists — a federal prosecutor, a CPA and a former Securities and Exchange Commission official — said deterring white collar crime is difficult, partly because criminals are typically caught after years of high living and typically only the top executives receive the harshest penalties.

COMMENT #1: The first problem I see is that none of the panelists have any background as a criminal.  Each represent a segment of society that intellectually is connected with and perhaps understands “white collar crime”, but none are “white collar criminals.”  Therefore, they see things from their perspective but have no practical experience in showing others how to deter crime.  See the list below and then ask yourself, how could any of these folks really identify with the commission of a crime and therefore how to prevent it?

The symposium, held by the Charleston Law Review and the Riley Institute at Furman University, took place Thursday and Friday in downtown Charleston. It included a keynote address by the founder and executive director of the Equal Justice Initiative based in Montgomery, Ala., as well as a series of panel discussions by scholars, judges, lawmakers, lawyers and public advocates.

‘Like the Whac-A-Mole game’

For example, in 2000, the FBI reported that the number of suspicious mortgage fraud cases was 3,515. By 2008, that number had risen to 63,713. Even eliminating false alarms, the numbers are growing at an enormous rate, said Daniel V. Dooley, CPA and a former senior partner with PricewaterhouseCoopers.

“This trend is staggering,” Dooley said. “This is like the Whac-A-Mole game.”

COMMENT #2: Why is this trend up?   To someone who has been involved in white collar crime the answer is obvious.  From 2000 to 2008 we experienced unprecedented economic growth.  Everything was financially rosy.  We acquired more debt.  We lived more extravagant lifestyles.  We created a larger life illusion.  Therefore, two things were present to fuel the white collar crime growth: (1) more money to steal; and (2) greater need (the first component that exists for the creation of a white collar crime).  The crimes have always been there, its the economic decline that has caused them to come to the surface.  Think of white collar criminal as fish (bottom feeders if you will).  When the water is high you don’t see them.  They are there all right, but out of sight.  But in a drought when the water level recedes they come to the surface.  In an economic recession, when the money recedes you see white collar crime come to the light.  The principle is easy.

In a recent paper, Dooley and Mark Radke, a former SEC official and partner with Dewey & LeBoeuf, wrote that this can be a big challenge to the argument that lengthy prison sentences deter fraud.

“Most financial criminals don’t think about it, and they don’t think they’ll get caught,” Dooley said.

The 150 years in jail that Ponzi schemer Bernie Madoff received will likely deter only him from committing similar fraud, Dooley said, and even those who consider they might get caught know that they might have a decade or more to live off ill-gotten gains before anyone notices.

COMMENT #3: Will the long prison sentence deter the crime.  Well with Madoff getting 150 years and a fellow from Maryland sentenced in Texas to 99 years for a $10 million crime – folks are taking notice.  But, Dooley is right.  Most white collar criminals don’t think they will get caught.  Why?  First, once you have satisfied your NEED…you begin to RATIONALIZE your behavior.  That’s the tricky part cause if you can convince yourself that you’re not committing a crime – you begin to believe your own ILLUSION (your own lie).  So…if you can help people understand the impact that PERSONAL RATIONALIZATION has in the commission of the crime, you likely can begin to prevent the behavior that leads to such an ILLUSION.

Radke thinks the SEC should act less like a prosecuting agency and more like a gatekeeper that could shut down rip-off artists even without a case that could go before a court. He said a lot of the damage that’s being done could be stemmed if the SEC would use its regulatory power to freeze assets and bar fraudulent activity from occurring.

“You don’t have to build a case beyond a reasonable doubt” to act, Radke said.

Assistant U.S. Attorney Rhett DeHart agreed that a more regulatory approach would be helpful in stopping financial criminals, but he said it’s impossible to know if large prison sentences deter the trend of financial fraud because you can’t measure the incidence of someone not committing a crime.

“Who knows whether they deter others or not?” he said. “You can’t measure a crime that’s not committed. I think deterrence may be the least important factor.”

COMMENT #4:  O.K. guys – this is a very nice academic exercise, but beneficial – I doubt it.   So as a start let me provide a list of things that might help to deter white collar crime:

  1. Make it known that you, from time to time, will have random auditors reviewing departments, processes and procedures – and THEN DO IT.  For example, you might have a plant (yes, fake employee) come into a department and test the integrity of workers.
  2. Post examples of folks who have committed a crime and the punishment that they received, and without violating some perceived right – make sure that those who internally violate are known and prosecuted.  If folks feel that their indiscretion will be swept under the table they are more likely to commit the crime.
  3. Self serving statement – but hire someone other than an academic to come in and speak to your folks.  You have no idea the impact it has when employees are faced with someone who committed the crime and then did the time.  I, or folks like me, make it real and the more real you can make it the more someone will think before they take some “white collar crime” action.
  4. Consistently keep the message of “choices and consequences” before them.  With companies I consult with, I often find that different mediums shared frequently has a positive impact.  It is said that a person might see an advertisement seven (7) times before they really consider buying.  If that is true in marketing, then aren’t we marketing good behavior.  Yes…of course so!  So, we need to approach behavior marketing the same as product marketing.  All we are looking for is a positive outcome.

FINAL QUESTION:  Do you think that “white collar crime” can be deterred and if so, how?  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!


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!


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!