SEC Charges Former Executives in Illegal Scheme to Enrich CEO With Perks
FOR IMMEDIATE RELEASE
2010-39
Washington, D.C., March 15, 2010 — The Securities and Exchange Commission today charged three former senior executives and a former director of an Omaha-based database compilation company for their roles in a scheme in which the CEO funneled illegal compensation to himself in the form of perks worth millions of dollars.
The SEC alleges that Vinod Gupta, the former CEO and Chairman of infoUSA Inc. and infoGROUP Inc. (Info), fraudulently used corporate funds to pay almost $9.5 million in personal expenses to support his lavish lifestyle. He additionally caused the company to enter into $9.3 million of undisclosed business transactions between Info and other companies in which he had a personal stake.
The SEC also charged the former chairman of Info's audit committee, Vasant H. Raval, and two of the company's former chief financial officers, Rajnish K. Das and Stormy L. Dean, for enabling Gupta to carry out the scheme.
Additional Materials
SEC Complaint vs. Gupta
http://www.sec.gov/litigation/complaints/2010/comp21451-gupta.pdf
SEC Complaint vs. Raval
http://www.sec.gov/litigation/complaints/2010/comp21451-raval.pdf
SEC Complaint vs. Das and Dean
http://www.sec.gov/litigation/complaints/2010/comp21451-dasanddean.pdf
SEC Order vs. Info
http://www.sec.gov/litigation/admin/2010/34-61708.pdf
"Gupta stole millions of dollars from Info shareholders by treating the company like it was his personal ATM," said Robert Khuzami, Director of the SEC's Division of Enforcement. "Other corporate officers also abused their positions of trust by looking the other way instead of standing up for investors and bringing the scheme to a halt."
Donald M. Hoerl, Director of the SEC's Denver Regional Office, added, "Officers and directors must ensure that shareholders receive accurate and complete disclosure of all compensation paid to executives. Raval, as chairman of the audit committee, neglected these duties and allowed the money to flow to Gupta unbeknownst to investors."
The SEC's complaints, filed in federal district court in Nebraska, allege that from 2003 to 2007, Gupta improperly used corporate funds for more than $3 million worth of personal jet travel for himself, family, and friends to such destinations as South Africa, Italy, and Cancun. He also used investor money to pay $2.8 million in expenses related to his yacht; $1.3 million in personal credit card expenses; and other costs associated with 28 club memberships, 20 automobiles, homes around the country, and three personal life insurance policies. The SEC also alleges that Gupta failed to inform Info's other board members of the material fact that he had purchased shares of an Info acquisition target for his own ill-gotten financial benefit.
The SEC alleges that Raval failed to respond appropriately to various red flags concerning Gupta's expenses and Info's related party transactions with Gupta's other entities. Two Info internal auditors raised concerns to Raval that Gupta was submitting requests for reimbursement of personal expenses, yet Raval failed to take meaningful action to further investigate the matter and he omitted critical facts in a report to the board concerning Gupta's expenses.
The SEC further alleges that Das and Dean allowed Gupta to support his lavish lifestyle by rubber-stamping hundreds of his expense reimbursement requests. Das and Dean approved Gupta's expense reimbursement requests despite the fact that the requests lacked sufficient explanation of business purpose and supporting documentation, even in the face of concerns raised by several Info employees. Das and Dean also signed management representation letters to Info's outside auditor falsely representing that all related party transactions with Gupta's entities had been properly recorded and disclosed in Info's financial statements.
Gupta, Raval, and Info agreed to settle the SEC's charges without admitting or denying the allegations against them.
Gupta agreed to pay disgorgement of $4,045,000, prejudgment interest of $1,145,400, and a penalty of $2,240,700. He consented to an order barring him from serving as an officer or director of a public company, and placing restrictions on the voting of his Info common stock. Gupta consented to a final judgment enjoining him from violations of Sections 10(b), 13(b)(5), and 14(a) of the Securities Exchange Act of 1934 and Rules 10b-5, 13a-14, 13b2-1, 13b2-2, 14a-3, and 14a-9 and from aiding and abetting Info's violations of Exchange Act Sections 13(a), 13(b)(2)(A), and 13(b)(2)(B) and Rules 13a-1, 13a-13, and 12b-20.
Raval agreed to pay a $50,000 penalty and consented to an order barring him from serving as an officer or director of a public company for five years. He also consented to a final judgment enjoining him from violations of Exchange Act Sections 10(b) and 14(a) and Rules 10b-5, 14a-3, and 14a-9, and from aiding and abetting Info's violations of Exchange Act Sections 13(a), 13(b)(2)(A), and 13(b)(2)(B) and Rules 12b-20 and 13a-1.
Info consented to the issuance of an Order Instituting Cease-and-Desist Proceedings Pursuant to Section 21C of the Securities Exchange Act of 1934, Making Findings, and Imposing a Cease-and-Desist Order without admitting or denying any of the findings in the SEC's order. The Order orders Info to cease and desist from committing or causing any violations and any future violations of Sections 13(a), 13(b)(2)(A), 13(b)(2)(B), and 14(a) of the Exchange Act and Rules 12b-20, 13a-1, 13a-13, 14a-3, and 14a-9.
The SEC's case against Das and Dean is ongoing. They are charged with violating Exchange Act Sections 10(b), 13(b)(5), and 14(a), and Rules 10b-5, 13a-14, 13b2-1, 13b2-2, 14a-3, and 14a-9, and for aiding and abetting Info's violations of Exchange Act Sections 13(a), 13(b)(2)(A), and 13(b)(2)(B), and Rules 12b-20 and 13a-1. Additionally, Das is charged with violating Exchange Act Rule 13a-13. The Commission's complaint seeks permanent injunctions, financial penalties, prejudgment interest, and an officer and director bar against both defendants.
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For more information about this enforcement action, contact:
Donald M. Hoerl — Regional Director, SEC Denver Regional Office: (303) 844-1060
Julie Lutz — Associate Regional Director, SEC Denver Regional Office: (303) 844-1056
Mary S. Brady — Assistant Regional Director, SEC Denver Regional Office: (303) 844-1023
http://www.sec.gov/news/press/2010/2010-39.htm
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