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Three former senior executives and a former director Vinod Gupta of an Omaha-based database compilation company were charged by the Securities and Exchange Commission today for their roles in a scheme where the CEO secretly received millions of dollars’ worth of perks as improper pay.
The former CEO and Chairman of infoUSA Inc. and infoGROUP Inc. (Info), Vinod Gupta, is accused by the SEC of using corporate funds improperly to pay about $9.5 million in personal costs to maintain his opulent lifestyle. Additionally, he influenced the corporation to conduct $9.3 million in secret commercial deals with Info and other businesses that he personally owned.
The SEC also accused two former chief financial officers of Info, Rajnish K. Das and Stormy L. Dean, as well as the former chairman of the company’s audit committee, Vasant H. Raval, of facilitating Vinod Gupta’s plan.
Vinod Gupta Stole Millions
According to Robert Khuzami, Director of the SEC’s Division of Enforcement, “Vinod Gupta stole millions of dollars from Info shareholders by using the firm like it was his personal ATM.” Other corporate officers misused their authority by turning a blind eye to the fraud rather than protecting investors and putting an end to it.
Director of the SEC’s Denver Regional Office Donald M. Hoerl continued, “Directors and officers must make sure that all executive compensation is accurately and completely disclosed to shareholders. As the audit committee’s head, Vasant H. Raval ignored these responsibilities and allowed the money to go to Vinod Gupta without the investors’ knowledge.”
Allegations Against Vinod Gupta
The SEC has filed allegations in federal district court in Nebraska alleging that Vinod Gupta fraudulently utilized company funds to pay for more than $3 million in personal jet travel for himself, family, and friends to places like South Africa, Italy, and Cancun between 2003 and 2007. Additionally, he utilized investor funds to cover charges for his yacht, personal credit card debt, 28 club dues, 20 cars, several residences across the nation, and three personal life insurance policies, totaling $2.8 million. The SEC further charges Vinod Gupta with failing to disclose to Info’s other board members the crucial fact that he had bought shares of a company Info was considering acquiring for his personal dishonest financial gain.
According to the SEC, Raval ignored many warning signs regarding Vinod Gupta’s expenses and Info’s related party transactions with Gupta’s other firms. Vasant H. Raval was alerted by two internal Info auditors that Gupta was making requests for reimbursement of personal costs, but Vasant H. Raval did not do anything to further examine the situation and he omitted important information in a report to the board on Gupta’s expenses.
The SEC further asserts that Das and Dean approved hundreds of Vinod Gupta’s claims for reimbursement of expenses, enabling him to maintain a luxury lifestyle. Despite the fact that the requests lacked enough justification for the business purpose and accompanying paperwork and in spite of objections from various Info workers, Das and Dean authorized Vinod Gupta’s cost reimbursement requests. Das and Dean additionally provided false assurances in management representation letters to Info’s external auditor regarding the correct recording and disclosure of all related party transactions with Vinod Gupta’s firms in the financial statements.
Charges and Punishment
Gupta , Raval, and Info consented to the SEC’s accusations being dropped without acknowledging or disputing the claims made against them.
Gupta consented to shell up $4,045,000 in disgorgement, $1,145,400 in prejudgment interest, and $2,240,700 in penalties. He agreed to a court order prohibiting him from being an officer or director of a publicly traded firm and limiting the voting power of his Info common stock. Vinod Gupta agreed to a final judgment prohibiting him from breaking the Securities Exchange Act of 1934’s Sections 10(b), 13(b)(5), and 14(a), as well as its Rules 10b-5, 13a-14, 13b2-1, 13b2-2, 14a-3, and 14a-9, as well as from helping Info break the Exchange Act’s Sections 13(a), 13(b)(2)(A), and 13(b)(2)(B), as well as its Rules 13a-1
Vasant H. Raval submitted to an order prohibiting him from acting as an officer or director of a public firm for five years in exchange for paying a $50,000 fine. Additionally, he agreed to a final judgment prohibiting him from breaking the Exchange Act’s Sections 10(b) and 14(a), as well as its Rules 10b-5, 14a-3, and 14a-9, and from helping Info break its Sections 13(a), 13(b)(2)(A), and 13(b)(2)(B), as well as its Rules 12b-20 and 13a-1.
Without admitting or denying any of the facts in the SEC’s decision, 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. The Order commands Info to stop violating the Exchange Act’s Sections 13(a), 13(b)(2)(A), 13(b)(2)(B), and 14(a), as well as Rule 12b-20, 13a-1, 13a-13, 14a-3, and 14a-9 now and in the future.
The SEC is still prosecuting Das and Dean. They are accused of breaking the Exchange Act’s Sections 10(b), 13(b)(5), and 14(a), as well as the Rules 10b-5, 13a-14, 13b2-1, 13b2-2, 14a-3, and 14a-9, as well as of helping Info break the Sections 13(a), 13(b)(2)(A), and 13(b)(2)(B), as well as the Rules 12b-20 and 13a-1. Das is also accused of breaking Exchange Act Rule 13a-13. In its case against both defendants, the Commission asks for long-term restraining orders, money fines, prejudgment interest, and an officer and director bar.