The SEC on Friday (September 28) filed a partially-settled civil injunctive action in federal court in Minnesota against Subramanian Krishnan, the former CFO of Digi International, Inc., alleging multiple offenses under the books and records and internal controls provisions of the FCPA.
From 2005 through 2010. the SEC alleged, used corporate funds to pay unauthorized travel and entertainment expenses for Digi employees.
The company develops wireless networking solutions.
The SEC said Krishnan created a system allowing Digi employees in its Hong Kong regional office to be reimbursed for personal expenses, including hotel and entertainment expenses, without approval by the CEO, ‘as required by company policy.’
‘Instead,’ the SEC said, ‘as CFO, Krishnan had authorization and the final approval for all of those expenses. As a result, Krishnan reviewed and approved his own expense reports which included unauthorized expenses.’
The SEC said Krishnan also approved cash payments in the Hong Kong office that weren’t supported by documentation or explanation.
The complaint didn’t specify how Krishnan or other Digi employees used the fraudulently obtained reimbursements.
Krishnan was charged with causing Digi to file inaccurate reports, failing to enforce Digi’s internal controls, failing reveal inaccurate reports, and wrongly certifying that he evaluated the effectiveness of Digi’s internal controls.
Digi International hasn’t been charged for the violations.
Krishnan consented to a final judgment without admitting or denying the allegations.
The judgment bars him from serving as an officer or director of any issuer. The duration of the bar and amount of a civil penalty and disgorgement will be ‘determined by stipulation of the parties or by motion of the Commission at a later date.’
Digi International Inc. trades on the Nasdaq Global Select Market under the symbol DGII.
SEC Litigation Release No. 22500 (September 28, 2012) in SEC v. Subramanian Krishnan, Civil No.: 12-CV-2495 PAM-JJG (USDC Minn., Filed Sept. 28, 2012) is here.
Download the SEC complaint here (pdf).
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The FCPA requires issuers to maintain accurate books and records and adequate internal accounting controls. The provisions cover the creation and use of slush funds, and financial practices used to hide bribe payments, among other things.
Under 15 U.S.C. § 78m(b), the SEC can hold officers, directors, and others personally liable for causing and aiding and abetting misstatements in the company’s books and records, and failing to take remedial action for violations of the FCPA and other provisions of the securities law.