Two top executives of a publicly traded Schaumburg software and consulting firm were arrested Wednesday morning for allegedly misrepresenting the company's finances to inflate its stock price.
Nandu Thondavadi, CEO of Schaumburg-based Quadrant 4 System, and Dhru Desai, its chief financial officer and chairman, were charged with wire fraud and certifying false financial reports related to two acquisitions and the settlement of a lawsuit against the company in 2013.
Thondavadi faces an additional charge of making false statements to the Securities and Exchange Commission in May during an investigation into the company's financial practices.
Both appeared in Chicago federal court Wednesday morning to hear the charges, which carry a maximum penalty of 20 years each for wire fraud and certifying false financial reports. Thondavadi faces an additional 5 years for allegedly making false statements to the SEC.
Thondavadi, 62, of North Barrington, and Desai, 55, of Barrington, are being held in federal custody, with a bond hearing set for Friday afternoon.
Quadrant 4, which launched in 2010, provides software and consulting services to health care and education customers. The firm reported $52 million in revenues and a net loss of $516,000 for 2015, according to financial filings.
The complaint alleges that Quadrant 4 misrepresented its acquisitions of Teledata Technology Solutions and Momentum Mobile in 2013, overstating the value of the deals. In the Teledata purchase, for example, the company said in financial statements it paid the seller 3 million shares of Quadrant 4 stock, when the actual agreement called for a payment of 475,000 shares, according to the complaint.
In late 2013, Quadrant 4 began making cash payments on a $1.75 million settlement after a court ruled it had breached a financing agreement with a New York-based lender, Downtown Capital Partners. Quadrant 4 allegedly misrepresented the settlement in financial statements as a payment of 1.87 million shares of its stock to enhance its cash position to investors, according to the complaint.
Thondavadi and Desai were the largest individual shareholders of the company at the time, according to the complaint.
In May, after the SEC launched an investigation into the company's financial practices, the agency questioned Thondavadi in its Chicago office about his potential interests in Core Information Technology Solutions, a major Quadrant 4 client. At the time, Thondavadi denied having any financial control or ownership interest in CITS, despite evidence to the contrary presented by the SEC, according to the complaint.
The company subsequently filed an amended annual report acknowledging related party transactions with CITS, which the complaint alleges resulted in $1.4 million in net transactions with Quadrant 4 in 2015.
Quadrant 4 has offices in seven states and India.
rchannick@chicagotribune.com
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