[Update, July 1, 2009: Steve Chicoine was acquitted of the charges described in this story. Here is a link to a Minneapolis StarTribune.com article of Feb. 9, 2009, Steve Chicoine: Exonerated, at long last.]
For the third time in as many weeks, the feds have levied charges against someone for defrauding Cisco Systems of more than $1 million in networking equipment.
On Wednesday, four executives of Interlink Communications Corp., an Edina, Minn., company that bought and sold new and used Cisco equipment, were charged with running a scheme on the networking company.
A grand jury indicted Mark B. Faris, 49, of Minnetonka, Minn., and VP of Interlink; Stephen D. Chicoine, 56, of Eden Prairie, Minn., and president of Interlink; Charles L. Lytle, 35, of Shakopee, Minn., and a sales rep; and Amy M. Ihrke, 39, of Jordan, Minn., who was a senior sales support representative with the company.
Faris, Chicoine, and Ihrke were arrested Wednesday and arraigned on the indictment in Minneapolis. They were released on $25,000 bond. They are scheduled to make an appearance in federal court in San Jose, Calif., on March 29.
Lytle is expected to surrender himself to the court. A date for his appearance in San Jose has not been set yet.
Last week, an IT contractor for the city of Newark, N.J., was arrested for allegedly using his position to defraud Cisco of more than $10 million. The week before that, a Massachusetts man was arrested
and charged with defrauding Cisco out of millions of dollars worth of computer networking equipment.
They all allagedly used the same scam of fraudulently ordering replacement parts from Cisco. The U.S. Department of Justice stated in a report that it will continue to investigate fraud against the company.
The department contends that from at least January 2001 to August 2002, the defendants and others allegedly conspired to submit fraudulent service contract claims to Cisco to receive replacement computer networking parts that they were not entitled to. They then sold these so-called replacement parts to customers and deposited the payments in Interlink's bank account.
According to a report out of the U.S. Attorney's Office in the Northern District of California, the defendants and others disguised their fraudulent acquisition and sale of the replacement parts by altering their internal purchase, sale, and inventory accounting system to make it appear as if the parts had been legitimately acquired.
An affidavit in support of a search warrant states that a review of 125 replacement claims made by Interlink to Cisco in one five-month sample period -- January to May 2002 -- as well as other evidence, demonstrated that all but one of the claims was fraudulent, according to the government's report. The affidavit also details a number of examples of Cisco equipment that Interlink fraudulently obtained, with retail values ranging from $4,995 to $34,995.
Faris, Chicoine, Lytle, and Ihrke all were charged with one count of conspiracy to commit mail fraud, wire fraud, and aiding and abetting. Faris, Chicoine, and Lytle were charged with one count of conspiracy to commit money laundering and aiding and abetting. Lytle was charged with 15 counts of mail fraud and 15 counts of wire fraud, and aiding and abetting.
The maximum statutory penalties for the mail fraud and wire fraud conspiracy and all but one mail fraud and one wire fraud charge are five years in prison and a $250,000 fine, or twice the gain or loss resulting from the fraud. Because one mail fraud violation and one wire fraud violation occurred after the effective date of the Sarbanes-Oxley Act, the maximum statutory penalties for those two violations are 20 years in prison and a $250,000 fine, or twice the gain or loss resulting from the fraud. The maximum penalties for money laundering conspiracy are 10 years in prison and a $250,000 fine, or twice the amount of the criminally derived property involved in the transaction.