Koss Corporation, the U.S. based high-fidelity stereo headphone company, and its Chief Executive Officer, Michael J. Koss, agreed to a settlement with the Securities and Exchange Commission without admitting or denying the Commission's charges in an action that stems from the previously reported embezzlement by the Company's former Vice President of Finance, Sujata Sachdeva. Ms. Sachdeva is currently serving an eleven year prison sentence for her crimes. The Company also announced that a settlement in principle has been reached subject to Court approval involving the claims that were brought against the Company and Michael Koss in a pending shareholder class action.
"The restated financial statements that we filed with the Commission back in June 2010 describe in detail the theft that occurred within our Company and the ways that the embezzlement was concealed from members of the Board and, in particular, from Michael Koss," said David D. Smith, Executive Vice President and Chief Financial Officer. Mr. Smith observed that, "Although as a smaller reporting Company, Koss was not required to have its internal controls attested to by the Company's auditors, it was clear that the auditors reviewed the Company's internal controls each year as part of planning their substantive testing, and the Company's financial statements were audited each year." Those audits failed to detect the embezzlement and underlying accounting fraud that was committed against the Company.
Immediately upon discovering the embezzlements in December 2009, the Company disclosed the occurrence to its shareholders, the securities markets, securities regulators and federal law enforcement authorities. Moreover, the Commission publicly acknowledged that the Company and Michael Koss cooperated throughout the course of its investigation.
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