Securities Law Blog

Former vice president of finance and principal accounting officer, Sujata Sachdeva, of Koss Corporation has been charged by the Securities and Exchange Commission (SEC) with accounting fraud, books-and-records violations, and misconduct relating to her alleged embezzlement of about $34 million from her employer.

Sachdeva allegedly began stealing money from the Milwaukee-based headphone manufacturer in 2004 and continued to do so with the help of Koss senior accountant Julie Mulvaney until December 2009.

According to the SEC’s complaint, the former employees allegedly concealed the theft on Koss’s balance sheet and income statements by overstating assets, expenses, and cost of sales, and by understating liabilities and sales. The approximately $34 million in company funds were embezzled by Sachdeva through cashier’s checks, unauthorized wire transfers and unauthorized payments from petty cash. As a result of the fraudulent records prepared by Sachdeva and Mulvaney, Koss filed materially false current, quarterly, and annual reports with the SEC.

The SEC claims that Sachdeva used the embezzled funds to make millions of dollars in payments on her personal American Express credit card, to purchase designer clothes and accessories, automobiles, airline tickets, and home improvements. In an effort to conceal the identities of check recipients, Sachdeva allegedly used acronyms such as “N.M. Inc.” for Neiman Marcus and “S.F.A. Inc.” for Saks Fifth Avenue.

The fraud was discovered when America Express noticed that a customer’s personal card account balances were being paid using several large wire transfers from a Koss bank account.

On July 27, 2010, Sachdeva entered into a plea agreement with the U.S. District Court for the Eastern District of Wisconsin to settle the criminal charges related to her multi-million-dollar theft. Sachdeva pleaded guilty to six counts of wire fraud and agreed to make full restitution to Koss for the stolen $34 million and faces at least 5 years in prison.

Under the plea agreement, the government will seek a forfeiture order for roughly $270,000 of the equity in Sachdeva’s $800,000 home. Koss will receive the proceeds from the auction of more than 22,000 luxury items including clothing, shoes, jewelry, furs and art. The plea deal also calls for the forfeiture of her 2007 Mercedes-Benz E350 and a time share in Hawaii. Sachdeva has agreed to forfeit her company retirement savings account and her interest in the employee stock ownership plan.

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.