SEC Announces the Resolution of Civil and Criminal Actions Against Former CFO of Information Technology Company
Litigation Release No. 24352 / November 15, 2018
SEC v. Quadrant 4 System Corp., Thondavadi, and Desai, Civil Action No. 17-cv-4883 (N.D. Ill., filed June 29, 2017)
In the Matter of Dhru Desai, Ap File No. 3-18841 (Filed September 26, 2018)
U.S. v. Thondavadi and Desai, Criminal Action No. 16-cr-772 (N.D. Ill., filed November 30, 2016)
The Securities and Exchange Commission today announced the resolution of three actions against the CFO of a Chicago-area information technology company, who was previously charged by the SEC and the U.S. Attorney's Office. Dhru Desai was ordered, in the SEC's civil action, to pay approximately $1.63 million in disgorgement, prejudgment interest, and a civil penalty; suspended by the Commission from practicing before the Commission on the basis of his guilty plea in the parallel criminal action; and sentenced to 39 months in prison in the criminal action.
The SEC's complaint, filed on June 29, 2017 in the U.S. District Court for the Northern District of Illinois, alleged that former chief executive officer Nandu Thondavadi and former chief financial officer Dhru Desai stole more than $4 million from Schaumburg, Illinois-based Quadrant 4 System Corp. ("QFOR") over a nearly five-year period. The former executives also allegedly 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.
On November 30, 2016, Thondavadi and Desai were charged with wire fraud and certifying false financial reports. U.S. v. Thondavadi and Desai, 16-cr-772 (N.D. Ill.). On June 29, 2017, the U.S. Attorney's Office expanded the charges against Thondavadi and Desai to include many of the allegations in the SEC's complaint. On May 31, 2018, Desai pleaded guilty to wire fraud in this parallel criminal action.
On June 25, 2018, the Court in the SEC's action entered a Final Judgment against Desai, which imposed a permanent injunction, disgorgement of ill-gotten gains totaling $1,293,694, prejudgment interest thereon of $150,117, and a $184,767 civil penalty.
On September 26, 2018, the Commission issued an order against Desai on the basis of his criminal conviction, suspending him from practicing before the Commission as an accountant.
On September 28, 2018, in the criminal action, the Court sentenced Desai to 39 months in prison and $2,869,226 in restitution (jointly and severally with Thondavadi).