Mystery Remains How Koss Executive’s $34 Million Crimes Went Undetected

Even lawyers for Sujata “Sue” Sachdeva, the former Koss Corp. executive sentenced to 11 years in prison for embezzling more than $34 million from the company (CED Nov 19 p2), are mystified how her crimes of such magnitude went on undiscovered for so long, they said in court papers filed last week. Government prosecutors also said they're at a loss to explain how she embezzled so much money without getting caught, and said that’s a “testament” to the complexity of her crimes and her cover-up.

Though Sachdeva doesn’t deny stealing $34 million from Koss, her lawyers said, she “never disguised or laundered through fictitious entities or accounts” the money she drew from company bank accounts to pay her American Express bills for her “irrational extravagant purchases.” On that point, the lawyers said, Sachdeva “roundly rejects” being called a “sophisticated” embezzler because she doesn’t fit the profile of a criminal who “took vast sums of money in a cold and calculated manner."

But prosecutors think Sachdeva actually was worse than a “garden-variety” embezzler who “dips into the till or surreptitiously diverts payments to herself or a fictitious vendor,” they told the court in a sentencing memorandum. Instead, “Sachdeva’s fraud was multi-layered and complex,” the details of which form a primer on how not to get caught, they said.

Before 2009, prosecutors said, the cashier’s checks and wire transfers Sachdeva diverted to her “personal benefit” were not recorded in Koss’s books. “This made it very difficult to detect Sachdeva’s fraud and would have required auditors to review source documents, such as bank records, to discover the thefts,” they said. “Having surreptitiously stolen funds, however, Sachdeva still had to prevent Koss and its auditors from discovering the theft once it compared bank balances to Koss’s books and records. To accomplish this, Sachdeva had to reduce the cash reflected on Koss’s internal records."

For the “short term,” prosecutors said, Sachdeva directed one of her assistants to delay recording cash receipts from customers and to record payments before actually making them. “This would temporarily reduce the cash on Koss’s books to correspond to the actual balances in its bank accounts, from which Sachdeva had diverted funds,” they said. “Once the receipts were ultimately recorded and payments actually made, Sachdeva had to find a way to reduce permanently the cash on Koss’s books to successfully hide her scheme."

Sachdeva directed the assistant to use a process called “debit/credit wipes” to erase or eliminate entire sales from Koss’s books, prosecutors said. “These entries happened at the individual customer account level and, because it involved completely erasing transactions, would have been virtually impossible to detect had forensic auditors not found secret records maintained by Sachdeva or her assistant,” they said. “Even these transactions, however, required balancing entries to other expense accounts to maintain the overall sales figures."

Sachdeva or her assistant also “made numerous journal entries to overstate assets, understate liabilities, understate sales, overstate costs of goods sold, and overstate expenses, to reduce the cash on Koss’s books,” prosecutors said. “Again, each of these entries required one or more balancing entries to other accounts. Frequently, one transaction was balanced by a series of smaller entries to expense accounts. A testament to the complexity of Sachdeva’s fraud is the fact that, even after interviewing Sachdeva and locating records for some of the various fraudulent entries, Koss’s forensic accountants have been unable to determine how Sachdeva hid more than $6.5 million of embezzled funds on Koss’s books."

Prosecutors in their filing didn’t name the assistant and have told us in an e-mail that they had no plans to charge anyone other than Sachdeva in the case. But Sachdeva’s lawyers, in court papers, identified the assistant as Julie Mulvaney, saying she actively participated in the scheme and cover-up, at times without Sachdeva’s knowledge. Milwaukee newspapers have reported that Mulvaney through her lawyer has denied any wrongdoing.

Sachdeva remains free on bond indefinitely so she may give depositions in several lawsuits related to the case, U.S. District Judge Lynn Adelman in Milwaukee said in a sentencing order. Koss has sued its former auditor, Grant Thornton, as well as American Express, alleging they should have discovered Sachdeva’s crimes sooner. Several shareholder lawsuits have been filed against Koss, alleging top management should have stopped Sachdeva from stealing $34 million from the company.