SEC charges Quadrant 4 System with accounting fraud, company goes bankrupt
Staff Writer |
The Securities and Exchange Commission has charged Chicago-area information technology company Quadrant 4 System Corp. (QFOR) and two former top executives in an accounting fraud scheme that misled investors and allowed the former executives to siphon millions from the firm for their personal benefit.
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The SEC’s complaint, filed in the U.S. District Court for the Northern District of Illinois, alleges that former chief executive officer Nandu Thondavadi and former chief financial officer Dhru Desai stole more than $4 million from Schaumburg, Illinois-based QFOR over a nearly five-year period.
The former executives also are alleged to have caused QFOR to understate its liabilities and inflate its revenues and assets, evading scrutiny by lying to the company’s auditors and providing them with forged and doctored documents.
According to the SEC’s complaint, the alleged scheme continued until November 2016, when Thondavadi and Desai were arrested and criminally charged with fraud.
QFOR announced their resignations in December 2016 and disclosed that the company’s financial reports could no longer be relied upon and required a restatement.
The SEC’s complaint charges QFOR with filing false and misleading quarterly, annual, and other reports, failing to make and keep accurate books and records, and internal accounting control failures.
Subject to court approval, and without admitting or denying the allegations, QFOR consented to an order to permanently enjoin the company from further antifraud, reporting, books and records, and internal control violations.
The court will determine at a later date whether disgorgement or a financial penalty should be imposed against QFOR.
Thondavadi and Desai are charged with multiple violations, including fraud, falsifying books and records, lying to auditors, falsely certifying QFOR’s filings, and aiding and abetting QFOR’s alleged violations.
In a parallel action, the U.S. Attorney’s Office for the Northern District of Illinois today announced additional criminal charges against Thondavadi and Desai, including charges that Thondavadi and Desai attempted to obstruct the SEC’s investigation, lied to the SEC under oath, and paid two individuals to lie to the SEC in the course of its investigation.
The SEC’s complaint seeks injunctions and return of allegedly ill-gotten gains plus interest and penalties against the company and the former executives as well as officer-and-director bars against Thondavadi and Desai.
Separately, the company has voluntarily filed a Chapter 11 bankruptcy reorganization case to allow the Company to continue normal operations while actively marketing and ultimately selling its business units as going concerns.
The Chapter 11 filing is in direct response to the actions and arrest of Messrs.
Thondavadi and Desai. The Company’s senior secured lender, BMO Harris Bank, has agreed to supply additional funding to assist the Company with operating during the Chapter 11 process, and the Company expects to continue normal operations throughout the Chapter 11 case while actively marketing its business units for sale as going concerns. ■