Koss fraud. Wow, not good.

[Hopstretch]

Koss fires exec after alleged $20 mln embezzlement

NEW YORK, Dec 25 (Reuters) - Koss Corp (KOSS.O) fired its vice president of finance after she allegedly embezzled more than $20 million from the headphones maker for a multi-year shopping spree of expensive clothes, jewelry and other personal items.

The executive, Sujata "Sue" Sachdeva, who is in her mid-40s, held the position at Koss since 1992.

Koss, which reported first-quarter sales of $10.8 million, also said on Thursday financial statements at least since the end of its 2006 fiscal year should no longer be relied upon.

The Milwaukee, Wisconsin company also said it placed two members of the accounting staff, who served under Sachdeva, on unpaid administrative leave.

Sachdeva allegedly used company funds to pay down her personal credit card bills, which totaled more than $4.5 million between Jan. 1, 2008 and Dec. 19, 2009, according to a criminal complaint filed by the U.S. Attorney's Office in a Wisconsin federal court.

Preliminary estimates indicate that the amount of unauthorized transactions since fiscal year 2006 may exceed $20 million, Koss said. Sachdeva's total compensation for fiscal year 2009 was $173,734, according to a regulatory filing.

Sachdeva racked up bills that often ran into hundreds of thousands of dollars, including spending nearly $1.4 million at Valentina Boutique, a high-end shop in Mequon, Wisconin, the complaint showed.

A reviewer on Yelp, a local search and review provider, says the store's selection of clothes, jewelry and accessories are "like exquisite works of art, but not in that weird, unwearable way -- more in that 'I've been dreaming about this dress, necklace, whatever and didn't know it existed!' way."

"Oh lord if I had five million dollars I would high tail it over to Valentina and go NUTS," the reviewer, identified as Katie W. of Chicago, wrote in a Dec. 5, 2007 entry.

Sachdeva spent liberally elsewhere as well. Among her other bills were: a $670,000 tab at women's clothing store Au Courant in Milwaukee; $649,000 from Zita Bridal Salon in Whitefish Bay, Wisconsin; and $255,000 in purchases from Karat 22 Jewelers in Houston, Texas.

The alleged fraud was discovered when American Express noticed that a customer's personal card account balances were being paid via several large wire transfers, originating from a Koss bank account.

Amex told the company's chief executive, Michael Koss, who found credit card statements in Sachdeva's name and "several large piles of women's clothing, with the price tags still attached," in her office.

Sachdeva acknowledged to the FBI that she had been using her position at Koss to authorize wire transfers to pay her personal credit card bills, and that she falsified the balance in Koss's bank account to hide the fact, according to the complaint.

Sachdeva's next court hearing is set for Jan. 11, her lawyer, Michael Hart, said on Friday.

Hart declined to comment further, saying it would be "inappropriate for me to comment at this juncture."

Koss' internal investigation, supervised by an independent committee of the board, is continuing, as are efforts to recover merchandise related to the unauthorized transactions, it said.

[n_maher]

I wonder how on earth it is possible for shit like this to happen post-Enron. Are companies really that out of touch with their bottom line?

[Dash]

Uh OH!

I hope this doesn't lead to the uncovering of instability in Koss' financial standing.

"Starts to hoard KSC75s"

[faust3d]

I hope she has stuff that Koss can reposes and sell, damn greedy people.

[screaming oranges]

Guys, don't start wondering how I buy my gear. I am an honest man... really, I swear!

[Hopstretch]

I hope this doesn't lead to the uncovering of instability in Koss' financial standing.

I'd say that's a given. A quick Google shows their net profit margin is in the 5% range. Assuming for simplicity sake that their revenues have been relatively close to the cited $10 million a quarter during the last few years, she would have spent every single dollar they made over the entire period plus all of the company cash reserves. Could be a terminal event.

[gallimaufry]

As a denizen of Wisconsin myself, I'm just mystified how someone could burn through that much money so quickly in-state. Manhattan, Los Angeles, easy, but Meqoun, WI??

[mypasswordis]

Wow, that's pretty bad. Chances Koss have been developing a successor to the 950 or making a better amp for it: nil. Or negative.

Here is a pic of her in case anyone's curious (I was):

[ktm]

That's a lot of money to hide. But still, how does one continue to do that over and over? You'd think after skating off with a million or two they would slow down a bit.

The CEO and CFO of the company I worked for were caught cooking the books a few years back. It was a blow that they never recovered from.

They went chapter 11 and my division was sold last week. I hope this doesn't kill them off.

[Dusty Chalk]

I wonder how on earth it is possible for shit like this to happen post-Enron. Are companies really that out of touch with their bottom line?

The only thing I can think of is that because she was the vice president of finance, there was no-one else to answer to. I mean Jesus, that's no insignificant part of one's profit.

Someone needs to put the on her bad, I don't care if she's a girl.

And there's no way they're going to reclaim even a small fraction of that stuff. Boutique clothes lose their value by at least tenfold as soon as they're purchased -- a lot of times, they're only expected to be worn once, so there's no returns on that sort of thing. I was once at a boutique and we were taking pictures, and the shopkeeper came out and made us stop taking pictures.

[Wmcmanus]

Major egg on the face of Grant Thornton, the auditing firm. My guess is that there has been a long standing relationship between them and Koss, and the audit program was extremely predictable and thus easy to elude.

There is now a mandatory 5 year limit for the partner in charge on any given engagement, then they need to rotate partners. No doubt they did this, but GT is not exactly a huge accounting firm and Milwaukee isn't a huge market either so no matter what they might do there would still be a high level of familiarity. Plus (assuming that it was a long standing audit relationship), no doubt the Koss business was a cash cow for GT in much the same way as Enron was for Arthur Andersen (albeit on a smaller scale). Familiarity breeds contempt. They need to realize that when you least expect fraud is when you really need to expect it.

This sort of thing is always a huge embarrassment on the accounting profession. It's frustrating to me that public accounting firms still seem to do everything in their power to mould their junior staff members into little efficiency machines and never allow them the luxury of the time that it often takes to actually think (as opposed to ticking and totaling). Their entire orientation is on completing the audit program within tight time budgets to maintain profitability. Makes me sick that they make machines out of fully capable people who are probably more aware of what audit risk and business risk means after taking their first auditing course than they are after "serving" a two year sentence in public accounting. Sometimes "experience" beats the sense out of people.

[blessingx]

More importantly, when did the news get so lazy it started using Yelp reviews?

[The Monkey]

meh, 20 million.

[Torpedo]

IMHO that woman needs more a psychiatrist than going to jail. I find quite weird that a person holding such responsibility place for 15 years, doing her job without complains, suddenly goes nuts and fucks her company and herself so stupidly.

[Hopstretch]

More importantly, when did the news get so lazy it started using Yelp reviews?

It's called "leveraging the power of the Internet." Where have you been?

[n_maher]

IMHO that woman needs more a psychiatrist than going to jail.

I disagree completely. She's got the potential to ruin more lives than a mass murderer right now and for that she deserves punishment, not coddling.

[Torpedo]

I disagree completely. She's got the potential to ruin more lives than a mass murderer right now and for that she deserves punishment, not coddling.

While I would wholeheartedly agree with you if she acted on bad will, I suspect she's just sick. IMO she's not responsible if she acted that way due to an illness.

[Hopstretch]

IMO she's not responsible if she acted that way due to an illness.

Such as greed?

[Torpedo]

If it's greed it's not a disease, but that weird attitude of stocking her purchases unused, keeping the tags and all that, drives me to think she's on a maniac status. I'd give her the benefit of doubt nonetheless, and would allow her a medical evaluation. Whether she's not sick, go to jail

[The Monkey]

Arguably, she injected much-needed consumer funds into the economy. Sort of a reverse TARP kinda thing.

[Kabeer]

I feel sorry for Koss, who seem to be one of the few last decent honourable companies.

Some people in this world just go past my comprehension, this woman is sick in some kind of way, whether it be mentally, or greedily.

[mrarroyo]

Tar and feather her I say!

[robm321]

Here is a pic of her in case anyone's curious (I was):

Nice necklace

[boomana]

Embezzlement of this magnitude is tough to hide, and hiding it was a full-time job she apparently was good at. It looks like she possessed enough consistent cognitive organization to pull it off without raising concerns, meaning she held the rest of her life together enough to not have people suspect. I've spent a lot of time with people in various stages of mania. Out of control shopping, gambling, drinking, lack of impulse control, etc. goes hand in hand with mania, but mania is a cluster of symptoms that are pretty obvious to people that know an individual well, even when mild, and although not inconceivable no one suspected something was wrong, it would have been much more difficult to sustaina multi-year period without other areas of her life going equally out of control. Apparently, it was an AMEX employee that busted her, not someone who knew her. I wonder how many people close to her are going to say they were surprised. I also don't think it was greed alone, as the shopping (warehouse room of clothing with tags still on) was just too nutso, and definitely a sign of addictive behavior. If it were just an episode or two, I'd say she was just sick, but the amount of dedicated effort needed to sustain her theft makes it just plain criminal, even if she suffers from clinical disorders.

Edited December 27, 2009 by boomana

[ktm]

Tar and feather her I say!

That would be the last custom clothing she would ever want or need.