GigaMedia Executives Charged With $50 Million Fraud Scheme
(Bloomberg) -- The top executives of defunct cybersecurity company GigaMedia Access Corp. were charged with duping investors out of more than $50 million by faking financial statements and having one of them pose as a customer.
Robert Bernardi, the founder and former chief executive officer of GigaMedia, which also did business as GigaTrust, Nihat Cardak, the company’s former chief financial officer, and Sunil Chandra, its former vice president for international business development, were arrested on fraud charges Wednesday morning and scheduled to appear in federal court in Virginia later in the day, prosecutors in New York said. They were also sued by the Securities and Exchange Commission.
Bernardi, 68, and Cardak, 51, are accused of using fabricated bank statements to obtain multiple rounds of loans and investments for the company, which filed for Chapter 7 bankruptcy protection in November 2019. Prosecutors said they made up fake statements that overstated the amount of cash deposits, concocted false audit materials that exaggerated the company’s performance and forged a letter from its lawyers.
Chandra, 80, was additionally charged with aggravated identity theft for allegedly posing as one of GigaTrust’s customers in order to secure a $25 million loan to the company.
The three men couldn’t immediately be reached for comment, and lawyers for them couldn’t immediately be identified.
Cash on Hand
According to the SEC’s suit, Bernardi told one investor, a private fund focused on secondary offerings in the technology sector, that the company had as much as $16.6 million in cash as of December 31, 2017, counted 400 companies of the Fortune 2000 among its active customers and had more than $55 million in revenue in 2017.
The fund coordinated investments in the company totaling $8.3 million based on those representations, according to the SEC. In reality though, GigaMedia only had $70,000 in cash at the end of 2017, fewer than 50 customers, and $1.5 million in 2017 revenue, the regulator said.
“Bernardi and Cardak’s deceit regarding Giga’s customer base, revenues and balance sheet was material” to the decision to invest, the SEC said in its suit. “Giga’s cash on the balance sheet was important” to the investor “because it meant that the company was not at risk of a liquidation event that could imperil the private fund’s equity investment.”
Bernardi, who founded Herndon, Virginia-based GigaMedia in 2000, was ousted in 2019 along with Cardak after the company breached a loan agreement with one of its investors. That investor then took control of the company and hired a third-party forensic accounting firm to conduct a restructuring. GigaMedia subsequently filed for bankruptcy.
The criminal case is U.S. v. Bernardi, 21-cr-616, U.S. District Court, Southern District of New York. The civil case is Securities and Exchange Commission v. Bernardi, 21-cv-8598, U.S. District Court, Southern District of New York.
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