United States Attorney Jenny A. Durkan
Western District of Washington
CO-FOUNDER OF HIGH TECH COMPANY CONVICTED OF WIRE FRAUD, MAIL FRAUD, AND MONEY LAUNDERING
Former CEO Transferred Company Money to Girlfriend to Pay for Personal Luxuries
MARK E. PHILLIPS, 36, of Seattle, Washington, was convicted today in U.S. District Court in Seattle of four counts of wire fraud, mail fraud, and two counts of money laundering. The jury deliberated 12 hours following a nine day jury trial. PHILLIPS, the co-founder and former CEO of MOD Systems Incorporated, has been in custody since his pretrial release was revoked in August 2010. PHILLIPS was first charged and arrested in March 2010. PHILLIPS faces up to 20 years in prison when sentenced on May 27, 2011, by U.S. District Judge John C. Coughenour.
According to filings in the case and testimony at trial, PHILLIPS is a co-founder of MOD and served as a director and Chief Executive Officer of MOD from its founding in 2005, until March 27, 2009. MOD is a start-up technology company engaged in the business of developing music and video downloading technology for retail kiosks. The company notified federal investigators of suspected embezzlement of corporate funds by PHILLIPS on March 16, 2010, which caused federal investigators to examine a series of wire transfers made out of the company’s account. Records indicate that PHILLIPS caused company money to be transferred to a bank account controlled by his then-girlfriend. The money was supposed to be used to pay for services provided by the woman’s company, but she never invoiced the company for any services or kept any of the money transferred into her account. Instead, the money was controlled by PHILLIPS, and he directed her to pay for luxuries for himself, including an expensive watch and a personal investment in another start-up company. Additionally, PHILLIPS had transferred $1.5 million out of the company to his personal account in April 2008, as a down payment for a $2.3 million penthouse. PHILLIPS lied to the MOD financial Vice-President, claiming the board had approved the transfer. PHILLIPS was forced to repay the money.
“We are pleased with the results of this investigation, which targeted an individual entrusted with fiduciary responsibilities who instead pilfered funds for his personal benefit,” said FBI Special Agent-in-Charge Laura M. Laughlin. “The results were made possible through an effective partnership between the FBI, IRS, U.S. Postal Inspection Service and the U.S. Attorney’s Office, a collaborative investigative model we have found very effective in addressing complex fraud schemes.”
“It is despicable for a CEO to violate his position of trust by looting corporate money for personal gain,” said Marcus Williams, the IRS Special Agent in Charge of the Pacific Northwest. “Federal law enforcement will not sit on its hands and allow that to happen.”
The case is being investigated by the FBI, the Internal Revenue Service Criminal Investigation (IRS-CI) and the U.S. Postal Inspection Service (USPIS).
The case is being prosecuted by Assistant United States Attorneys Aravind Swaminathan and Matthew Diggs.