SEC Charges Business Associate with Aiding and Abetting Accounting Fraud At Information Technology Company, Resolves Charges Against CFO Who Committed Underlying Accounting Fraud
Litigation Release No. 24210 / July 19, 2018
On July 19, 2018, the Securities and Exchange Commission charged Bhushan Dandawate, a resident of Fairfax, Virginia, for aiding and abetting a fraudulent accounting scheme by the former Chief Executive Officer and former Chief Financial Officer of an Illinois consulting and software development company between April 2015 and May 2016. The SEC also recently resolved its charges against the former CFO in the form of a Final Judgment imposing permanent injunctions, disgorgement, prejudgment interest, a civil penalty, and a permanent officer and director bar.
According to the SEC's complaint, Dandawate aided and abetted a fraud perpetrated by Quadrant 4 System Corp. ("QFOR"), Nandu Thondavadi, and Dhru Desai by falsely claiming in bank documents that he controlled ten entities that were, in reality, controlled by QFOR, Thondavadi, and Desai, and by allowing QFOR to use those bank accounts for various fraudulent purposes. The complaint also alleges that Dandawate participated in the falsification of QFOR's revenue by helping to arrange numerous round trip transactions and by knowingly signing and sending two false audit confirmation letters to QFOR's auditors. The complaint further alleges that the fraudulent scheme resulted in the material falsification of QFOR's financial condition as reported in QFOR's public filings in 2015 and 2016.
The SEC's complaint alleges that through this conduct, Dandawate aided and abetted QFOR's, Thondavadi's, and Desai's violations of the antifraud provisions under Section 10(b) of the Securities Exchange Act of 1934 ("Exchange Act") and Rule 10b-5 thereunder. The SEC's complaint also alleges that Dandawate aided and abetted QFOR's, Thondavadi's, and Desai's violations of the books and records provisions under Section 13(b)(2)(A) of the Exchange Act and Rule 13b2-1 thereunder. In addition, the SEC's complaint alleges that Dandawate aided and abetted Thondavadi's and Desai's misconduct in connection with the preparation of required reports provisions of Rule 13b2-2 under the Exchange Act. Finally, the SEC's complaint alleges that Dandawate aided and abetted QFOR's violations of the reporting provisions under Section 15(d) of the Exchange Act and Rules 12b-20, 15d-1, 15d-11, and 15d-13 thereunder.
Dandawate agreed to settle the charges without admitting or denying the allegations of the complaint and consented to entry of a final judgment that permanently enjoins him from future violations of the securities laws, imposes a permanent officer and director bar, and orders him to pay disgorgement and prejudgment interest of $131,466, and a civil penalty of $325,000. The settlement is subject to court approval.
On June 26, 2018, a Final Judgment was entered by the Court against Desai, by consent. The Final Judgment imposed a permanent officer and director bar on Desai, and ordered him to pay disgorgement of $1,293,694 plus $150,117 in prejudgment interest, and to pay a $184,767 civil penalty. The Final Judgment also imposed a permanent injunction against future violations of Section 17(a) of the Securities Act of 1933 ("Securities Act"), Section 10(b) of the Exchange Act and Rule 10b-5 thereunder, and the books and records and internal controls violations of Sections 13(b)(2)(A), 13(b)(2)(B), and 13(b)(5) of the Exchange Act and Rule 13b2-1 and 13b2-2 thereunder, the false certification provision under Rule 15d-14 of the Exchange Act, and the reporting provisions under Section 15(d) of the Exchange Act and Rules 12b-20, 15d-1, 15d-11, and 15d-13 thereunder.
The SEC's action against Thondavadi continues.
The SEC's investigation was conducted by Robin Andrews, Meredith J. Laval, Rebecca Hollenbeck, and Michael Foster of the Chicago Regional Office. The case was supervised by Amy S. Cotter.