Rich Kirchen – Business Journal of Greater Milwaukee
Sue Sachdeva clearly had gained the confidence and trust of Koss Corp.’s top management and she allegedly used that relationship to commit possibly the nation’s largest corporate embezzlement case of 2009.
The Milwaukee-based stereophone designer and marketer had allowed its longtime vice president of finance to telecommute from Houston in the mid-1990s when she moved there with her physician husband, Ramesh Sachdeva. After relocating back to metro Milwaukee, she worked from her Mequon home two days per week as of late 2007.
She was arrested Dec. 21, 2009, for allegedly using interstate wire communications to defraud Koss Corp. of more than $4.5 million. She still frequently took work home and conducted company business there via computer, according to the criminal complaint filed in U.S. District Court.
The company disclosed on Christmas Eve that the losses from Sachdeva’s unauthorized transactions may exceed $20 million. The company plans to restate its financial statements.
“They trusted her absolutely and implicitly,” said Chris Marquet, a Boston corporate fraud consultant. “She had the full faith and confidence of the majority shareholders and other executives.”
Marquet, who compiles an annual list of corporate embezzlement cases in the United States, said the Koss case is the largest he tracked in 2009. He estimates there were more than 450 embezzlement cases involving thefts of more than $100,000 in 2009.
The amount embezzled in the Koss case is huge and easily exceeds the 2008 mean average of $2.2 million and the median of $500,000, Marquet said. He hasn’t yet finalized his 2009 figures.
The largest embezzlement in 2008 was $65.6 million by Ausaf Umar Siddiqui from Fry’s Electronics Inc., Marquet said. Siddiqui, a former executive at San Jose, Calif.-based retailer Fry’s, was charged with nine counts of wire fraud and money laundering over three years and allegedly used the proceeds for gambling.
Sachdeva, 46, allegedly used her ill-gotten company funds to pay off shopping bills.
Koss executives recently learned she tapped company funds to pay down her personal American Express account after the credit firm’s staff alerted Koss. While she frequently worked from home, the wire transfers listed in the criminal complaint were initiated at Koss’ office, 4129 N. Port Washington Road.
She used the American Express card to buy a total of $3.6 million worth of jewelry, watches, clothing, furs, formal wear and fine home decor at several Milwaukee-area independent retailers, according to the complaint. The transactions were made between Jan. 1, 2008, and Dec. 19, 2009; however, the company said it may need to restate its financial results since 2006.
Sachdeva transferred $4.5 million from the Koss corporate account at Harris Bank into her American Express account between Sept. 2 and Nov. 25, 2009, the complaint said.
Sachdeva’s Milwaukee attorneys did not return a call seeking comment. She is free on $50,000 bond and prohibited from travel outside eastern Wisconsin. Her next court date is scheduled for Jan. 11.
Why Sachdeva committed the fraud, which she acknowledged when FBI agents questioned her at her home on Dec. 21, is uncertain. Also unclear is the reason the company didn’t detect the problem sooner.
Koss Corp. CEO and chief financial officer Michael Koss said this week he could not comment because of the pending FBI investigation. Koss, 55, is the second-generation CEO of the company founded in 1953 by his father, John, who is chairman. The family controls 73 percent of the firm’s stock.
“I can’t really talk to you about anything,” Koss said.
The company has appointed a special committee of outside directors to investigate the embezzlement. Koss Corp. also hired Jefferson Wells, an accounting unit of Milwaukee-based Manpower Inc., to review the situation.
John Stollenwerk, a former CEO of Allen Edmonds Shoe Corp. in Port Washington and a member of the audit committee and special committee, said this week he could not comment.
A spokesman for the company’s independent auditor, Grant Thornton LLP, Chicago, also declined to comment.
Koss Corp. fired Sachdeva effective Christmas Eve and suspended two of her underlings.
Sachdeva was in a position of power with the company’s finances, which likely made it difficult for the organization to figure out what she was doing, Marquet said. Her work-from-home arrangement added to the challenge of detecting her actions, he said. She joined the company in 1992.
Sachdeva fits the profile of the majority of embezzlers, 60 percent of whom were women in 2008 and frequently had access to their employer’s purse strings, Marquet said. The average duration of the embezzlement was four-and-a-half years, he said.
Shopping addiction is a likely cause of Sachdeva’s actions, said Steven Kravit, a Milwaukee attorney who often defends executives in trouble but not in this case. He said she might employ a mental health defense.
U.S. Magistrate Aaron Goodstein on Dec. 21 ordered a mental health evaluation of Sachdeva by U.S. Probation and Pretrial Services, which supervises people released on bond pending trial.
“This looks like a clear, fairly obvious psychological fetish with clothes buying,” Kravit said.
The company is unlikely to recover all its losses, experts said. A $20 million loss, even spread over several years, will make a major impact on the company that records about $38 million in annual revenue.
Koss Corp. can pursue several avenues for recovering some of the stolen funds.
If Sachdeva is convicted, her sentence is likely to include restitution.
The company may have insurance which could provide some cash. The company also could seek to return the recovered merchandise for refunds.
The company also could sue Sachdeva for damages, said Tracy Coenen, a Milwaukee forensic accountant and fraud investigator.
“Recovery of funds stolen by employees is often very low,” Coenen said.