Former Cisco VP Accused in Offshore Fraud Plan
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It seems like something out of a film about white-collar scandals, a la the films Wall Street or Boiler Room -- except the accused wasn't being tattooed for hoodwinking people out of their companies or their life savings.
Instead, in allegedly arranging fake stock deals, offshore accounts and a cardboard company, former Cisco Systems Inc. vice president Robert S. Gordon is being tried in San Jose federal court this week on the accusations that he nearly bilked the giant hardware company out of $10 million.
Gordon, 42, had been a VP of business development until April when he was fired after the allegations surfaced. He appeared in court Monday for the first time after being released from police custody when he posted a $5 million cash bond and used his $1.6 million house in Silicon Valley as collateral.
Gordon proclaimed his innocence to U.S. Magistrate Judge Patricia Trumbull, according to the online addition of the San Jose Mercury News, although he admitted to breaking company rules. Making the news all the more unseemly is that he had just reached the VP plateau after five years with the San Jose-based company.
Cisco has said it would prosecute Gordon to the fullest extent, given the sheer scope of the crime. The complaint alleges that Gordon last year allegedly transferred more than 30,000 shares of stock of Internet Security Services Group, a company that had been acquired by Cisco, into a Bahamas-based shell company he created called, quite unoriginally, Cisco Systems, which had no affiliation with the U.S.-based company.
An FBI affidavit said he subsequently sold the stock for more than $5 million, which he allegedly used to fund a second, scheme. The form said Gordon supposedly used the $5 million to induce a Cisco business partner, an interactive voice response start-up called Spanlink, to eventually deliver $10 million into a phony venture capital firm he established.
Spanlink had been seeking a cash infusion from Cisco last year; Gordon agreed to provide the $5 million through the venture firm named Bay Star Capital. Spanlink was unaware that Gordon was acting on his own, even though Bay Star listed his home address. The deal called for Bay Star to eventually get $10 million in equity in exchange for the original investment.
Perhaps what made it more convincing to Spanlink, is that Gordon had handled an earlier $45 million Cisco investment in Spanlink. Cisco provided $15 million in additional funding to Spanlink last month, and Gordon capitalized. Spanlink cut a check for $10 million to the psuedo firm Bay Star, according to the government. The government claims Gordon also shifted $260,000 in profits from his initial stock diversion into personal bank accounts.
Cisco's security officials began to chip away at the scheme on April 4, when they discovered the missing 30,000 shares of stock. Upon being interviewed at that time, Gordon said he did indeed transfer the stock but denied any impropriety, the court papers said.
Gordon pleaded his case with Cisco Chief Executive Officer John Chambers, according to the affidavit, telling Chambers that he help Cisco's partner companies.
Gordon's counsel Richard Beada said his client takes the matter seriously and is trying to resolve the situation as quickly as possible.
Richard Hibey, head of the litigation practice group at Washington, D.C.-nased Winston & Strawn, specializes in litigation cases involving white-collar criminal and antitrust matters. Hibey said money laundering schemes, such as the one allegedly perpetrated by Gordon, are not uncommon at all.
"They're alomst a garden variety type," Hibey told InternetNews.com Tuesday. "They're not peculiar to any one industry or any particular sector of business. There is always a degree of cleverness associated with these crimes. I don't know any more details beyond what I've read about this specific case, but you have to wonder whether or not he is susceptible to a defense of 'I didn't know it was happening.'"
Hibey said standard investigative practice dictates that Gordon's conduct would be looked into, and a motive would have to be determined to get an idea of the capacity of the crime. The lawyer did not want to speculate on a possible sentence because he did not have the specifics of the court papers him, but said that federal fraud and money laundering of $10 million is a serious offense. A sentence could range from 63 to 151 months, or roughly 5 to 13 years.
The supposed scheme is the latest in what has turned out to be a month-long spate of negative press for Cisco, albeit not all of it is entrenched in criminal happenings.
Just a day after Gordon's alleged crimes were first detected, two Cisco accountants indicted for breaking into the company computer network and tran sferring millions of dollars in Cisco stock to their own brokerage accounts.
Geoffrey Osowski of Mountain View, Calif., and Wilson Tang of Palo Alto, Calif., are accused of twice transferring Cisco stock, worth a total of $6.3 million, into their personal brokerage accounts this year and selling it, the U.S. attorney's office said in a statement on April 5.
After the first incident, Osowski bought, among other things, a 2001 Mercedes 320 for $52,000; a diamond ring for $44,000; and a Rolex watch for $20,000, the government alleges.
A week and a half later, Cisco laid off 20 percent of of its workforce, or 8,500 employees, on April 16. With the cost-cutting measures, which also included 2,500 temporary positions, Cisco expected to take a one-time charge of $300 million to $400 million. The company said the cuts will reduce costs by $1 billion on an annualized basis.
That news was underscored by the announcement that Cisco, considered a bellwether stock pick and impervious tech company, expected revenues in the fiscal third quarter to drop 30 percent from the previous quarter's $6.7 billion, putting earnings per share "in the very low, single-digit range."
Analysts predicted profits of 8 cents per share, according to FirstCall/Thomson.