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| Indian-American businessman charged by SEC with fraud |
| Yoshita Singh/PTI / Chicago Mar 16, 2010, 11:09 IST |
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The Indian-American founder of a database compilation firm was today charged by regulators with fraudulently using millions of dollars of corporate funds to support his lavish lifestyle, including 20 automobiles and a jet, forcing him to agree to $7.43 million in penalties.
Vinod Gupta, the former CEO and Chairman of the Omaha-based infoUSA Inc and infoGROUP Inc, allegedly used corporate funds to pay almost $9.5 million in personal expenses, the Securities and Exchange Commission (SEC) said.
He additionally caused the company to enter into $9.3 million of undisclosed business transactions with other firms in which he had a personal stake. Gupta has agreed to settle the SEC's charges without admitting or denying the allegations against him.
He would pay about $7.43 million, including disgorgement of $4.04 million, prejudgment interest of $1.14 million and a penalty of $2.24 million to settle the charges.
He has also agreed 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 stole millions of dollars from Info shareholders by treating the company like it was his personal ATM. 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," Director of the SEC's Division of Enforcement Robert Khuzami said.
The federal regulator also charged Vasant H Raval, the former chairman of Info's audit committee and two of the company's ex-chief financial officers, Rajnish K Das and Stormy L Dean, for enabling Gupta to carry out the scheme.
Raval would pay a $50,000 penalty and has consented to an order barring him from serving as an officer or director of a public company for five years.
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 three million dollars worth of personal jet travel for himself, family and friends to South Africa, Italy and Cancun.
He also used investors' 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.
Gupta and his immediate family have at least nine US homes, including in Las Vegas, Colorado, Miami and Hawaii, the SEC said.
It 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.
Charging Raval, the SEC said he 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 probe the matter and he omitted critical facts in a report to the board concerning Gupta's expenses, SEC said.
Das and Dean also allowed Gupta to support his lavish lifestyle by "rubber-stamping" hundreds of his expense reimbursement requests, the SEC said.
They 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.
The two 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, SEC 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," Director of the SEC's Denver Regional Office Donald Hoerl said.
Gupta was Info's chief executive from 1992 through August 2008, when he stepped down as part of a proposed settlement of a shareholder lawsuit. The lawsuit alleged that Info misspent millions of dollars, some of it on domestic and international air travel for former President Bill Clinton and his wife, then-Senator Hillary Clinton.
Gupta has been a major donor to Democrats and gave at least a million dollars to Bill Clinton's presidential library in Arkansas. He also took part in a fundraiser for Hillary Clinton in New York in June 2007.
Last week, infoGroup agreed to be acquired by private equity firm CCMP Capital Advisors for about $463 million.
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