A Ferrari-driving vice president of Fry's Electronics Inc. who was allegedly such a heavyweight gambler that casinos chartered private planes to fly him to Las Vegas has been arrested on charges he embezzled more than $65 million from the retailer to fuel his lavish lifestyle and pay off debts.
Ausaf Umar Siddiqui is accused by the IRS of concocting an incredibly profitable scheme in which he cut side deals with some of Fry's suppliers, buying their goods at higher prices than they would normally get, and buying more of them than he normally would, in exchange for kickbacks of up to 31 percent of the total sales price.
The IRS alleges in a criminal complaint filed against Siddiqui that he set up a shell company that hid $65.6 million in kickback payments from five Fry's vendors from January 2005 to November 2008. Of that amount, $17.9 million was paid to subsidiaries of Las Vegas Sands Corp., which operates the Venetian Casino Resort, according to the criminal complaint and regulatory filings. Authorities confirmed the payments went to the casino.
Siddiqui, who lives in Palo Alto, was ordered held on $300,000 bond Monday at a hearing in U.S. District Court in San Jose. He has been in custody since Friday, when agents arrested him at Fry's headquarters in San Jose in front of stunned co-workers. The details about his Ferrari and the private jets came out during the hearing Monday.
His home phone number is unlisted, and it wasn't immediately clear whether Siddiqui had a defense lawyer. A criminal complaint is one of the preliminary investigative steps for arresting someone and securing an indictment.
A Fry's spokesman did not return a phone call from The Associated Press left after-hours.
Siddiqui has not been formally charged yet with the wire-fraud allegations laid out in the criminal complaint. Arlette Lee, spokeswoman for the IRS' Criminal Investigation division, said the judge in the case has given the government 20 days to file formal charges, which she said prosecutors intend to do.
As Fry's vice president of merchandising and operations, Siddiqui pulled down a legitimate annual salary of $225,000, supervised a staff of 120 and his team was responsible for buying all the merchandise sold in Fry's 34 stores around the U.S., according to the criminal complaint. The stores are mostly located in California and Texas.
The IRS alleges Siddiqui was able to amass so much illegal money by convincing Fry's executives that he alone should be responsible for a job that is typically handled by independent contractors -- the job of the sales representative that brokers deals with the suppliers and the stores for a cut of the total sales price.
The reps are kept independent so they're not seen as favoring one side or the other in sales negotiations, and their job can be lucrative if they're good at it, with commissions ranging from 3 to 8-percent of the total sales they bring in, according to the complaint.
The IRS claims Siddiqui started striking side deals with some of the suppliers, in which he would guarantee he'd keep their products stocked on Fry's shelves, in exchange for kickbacks in the form of steep commissions paid to a company he set up called PC International.
The alleged scheme unraveled when another Fry's executive walked into Siddiqui's office in October and saw spreadsheets on his desk outlining the payments and alleged kickbacks, according to the complaint. Siddiqui wasn't there, so the executive took the documents, contacted the IRS and handed over the evidence.
The IRS later examined Siddiqui's bank records and found that a total of $167.8 million was deposited into the bogus company's bank account. Seventy wire transfers totaling $65.6 million came from five Fry's suppliers, who were not named as defendants in the case.
(Copyright 2008 by The Associated Press. All Rights Reserved.)
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Folks, you've got to just shake your head in astonishment that any company would allow anyone an opportunity to accomplish such a scam and you've got to marvel that their suppliers would be willing to get onboard. I'm guessing that the grift was split with the supplier's reps and they too will be on the carpet soon. There's a lot more churning in the muck than this simple statement mentions.
He guaranteed placement of their products for a consideration, bad enough, but to pay above market and take the difference in a rebate to his own corporation requires some pretty involved paper juggling and could not be done by two people however how highly placed without collusion from others in the chain. That is if either company involved had decent controls in place.
Just my thoughts...