Former Corporate Executives Charged With Securities Fraud And Tax Offenses For Wide-Ranging Commercial Bribery Scheme
Two Coral Gables residents were charged today by separate informations for their participation in a scheme to obtain more than $9 million dollars in kickbacks and other benefits, and to conceal this illicit income from the IRS, while employed as senior executives at Systemax, Inc. (“Systemax”) and its subsidiary, TigerDirect, Inc. (“TigerDirect”).
Wifredo A. Ferrer, United States Attorney for the Southern District of Florida, Loretta E. Lynch, United States Attorney for the Eastern District of New York, George Venizelos, Assistant Director-in-Charge, Federal Bureau of Investigation (FBI), New York Field Office, and Kelly R. Jackson, Special Agent in Charge, Internal Revenue Service, Criminal Investigation (IRS-CI), made the announcement.
According to the charging documents:
Systemax, has its principal place of business in Port Washington, New York and sells personal computers and other consumer electronics through its websites, retail stores and direct mail catalogs including TigerDirect, CompUSA, and Circuit City. In fiscal year 2010, Systemax had annual sales revenue of approximately $3.6 billion according to its public filings. Gilbert Fiorentino, 54, was a director of Systemax and was the Chief Executive Officer of its Technology Product Group, including its subsidiary TigerDirect. Carl Fiorentino, 57, was the former president of TigerDirect, and both Fiorentino brothers worked at TigerDirect’s Miami offices before they were terminated on April 18, 2011.
As senior executives of TigerDirect, Gilbert Fiorentino and Carl Fiorentino had responsibility for purchasing and sourcing hundreds of millions of dollars-worth of computer and electronics items for Systemax and its various operations. According to the informations, Gilbert Fiorentino and Carl Fiorentino conspired with each other and third parties to obtain unlawful kickbacks in exchange for steering business to companies that paid the kickbacks. In the case of one Asia-based supplier of computer parts and accessories, court documents allege the brothers received more than $9 million in cash and undocumented payments in return for steering more than $230 million in business to the supplier.
As further alleged, while serving as a senior executive of TigerDirect, Carl Fiorentino received millions of dollars in payments from a TigerDirect supplier, including more than $3 million to pay for his own waterfront residence in Gables Estates, and millions of dollars-worth of luxury furnishings, including furniture, art and a high-tech security system. The information charging Carl Fiorentino additionally alleges that, in 2007, he filed a false United States Individual Income Tax Return in which he understated his taxable income by more than $4 million dollars.
According to court papers, while serving as a director of Systemax and the CEO of TigerDirect, Gilbert Fiorentino received hundreds of thousands of dollars in cash payments, including deliveries of cash in the parking lot of the Miami offices of TigerDirect, from one supplier, gold coins valued at more than $150,000 from a vendor, and deliveries of furniture and other goods and services to his waterfront home in Gables Estates. The information charging Gilbert Fiorentino further alleges that he misappropriated company merchandise for his own benefit, including by paying a third party more than $100,000 in electronics to provide upkeep for Gilbert Fiorentino’s yacht.
As a public company, Systemax was required to comply with Section 404 of the Sarbanes-Oxley Act of 2002 that requires certain management personnel to sign annual conflict of interest questionnaires, certifications of compliance with Systemax’s corporate ethics policy, and representations about transactions out of the course of ordinary business. These questionnaires include a representation as to whether the employee had “receive[d] or ma[de] any arrangements for the receipt of any compensation or other personal financial benefit from a current or potential supplier, competitor or customer” of Systemax. As alleged in the informations, from 2005 through 2011 Gilbert and Carl Fiorentino regularly signed such conflict of interest questionnaires in which they falsely and fraudulently concealed from Systemax their receipt of cash, and other remuneration from vendors who did business with Systemax. Gilbert Fiorentino regularly met with Systemax’s independent auditors at the offices of TigerDirect in Miami, while the auditors were conducting quarterly reviews and annual audits of the company. In written management representation letters and in direct conversations, Gilbert Fiorentino made false and misleading statements to Systemax’s auditors regarding the accuracy of the company’s books, records and accounts as they pertained to his own compensation, the compensation of his brother, Carl Fiorentino, and both defendants’ receipt of kickbacks from third parties, among other things. These false and misleading statements and omissions were material to the ability of the auditors to perform accurate reviews and audits of the company’s books, records, and accounts, and to assess Systemax’s internal controls over financial reporting.
This case was originally investigated by the U.S. Attorney’s Office for the Eastern District of New York with the assistance of the FBI New York Field Office and the IRS-CI Miami Field Office. Carl Fiorentino was previously charged in the Eastern District of New York on June 18, 2013, with conspiracy to commit mail and wire fraud, multiple counts of mail and wire fraud, and money laundering. The case involving Carl Fiorentino was transferred to the Southern District of Florida by court order on January 6, 2014.
The information filed today against Carl Fiorentino charges him with one count of conspiracy to commit mail and wire fraud, in violation of 18 U.S.C. § 1349 and one count of tax evasion, 26 U.S.C. § 7201, in connection with his efforts to conceal his illicit income from the IRS and evade paying taxes from such income. Carl Fiorentino faces a statutory maximum of 25 years in prison. The information filed today against Gilbert Fiorentino charges him with one count of conspiracy to commit securities fraud and to impair and impede the lawful functions of the IRS, in violation of 18 U.S.C. § 371. He faces a statutory maximum of five years in prison.
U.S. Attorney Ferrer stated “Gilbert and Carl Fiorentino put their financial gain and lavish lifestyle ahead of their responsibilities as corporate officers and directors. They accepted kickbacks, driving up the price of the consumer electronics and passing the price increase to customers. The Fiorentinos took advantage of their positions of trust. But they didn’t get away with it. Today’s charges demonstrate that we will hold liable heads of companies who abuse their positions and violate tax and securities laws that protect investors in financial markets.”
“As alleged, the brothers Fiorentino were supposed to choose their companies’ suppliers based on the best price they could get. Instead, they made their decisions based on the biggest kickbacks for themselves. In so doing, they abused the trust placed in them and cheated their employers, the shareholders, and the IRS,” stated U.S. Attorney Lynch. “We and our law enforcement partners will prosecute to the fullest extent of the law all those who seek to profit by such fraud.”
IRS-CI Special Agent in Charge Kelly R. Jackson stated, "These high-ranking corporate officials held positions of trust not only in their companies but also in the eyes of the public. They chose to receive kickbacks and side payments that they intended to hide from Systemax and the IRS. Their criminal actions are unacceptable to both investors and to the tax paying public. IRS Criminal Investigation, along with its law enforcement partners, will vigorously pursue corporate officers who misuse their positions of trust and violate the tax laws.”
Mr. Ferrer and Ms. Lynch commended the investigative efforts of the FBI and IRS-CI. The matter is being prosecuted by Assistant U.S. Attorneys Jerrob Duffy of the Southern District of Florida and Whitman G.S. Knapp of the Eastern District of New York.
An information is only an accusation and a defendant is presumed innocent until proven guilty.
A copy of this press release may be found on the website of the United States Attorney’s Office for the Southern District of Florida at www.usdoj.gov/usao/fls. Related court documents and information may be found on the website of the District Court for the Southern District of Florida at www.flsd.uscourts.gov or on http://pacer.flsd.uscourts.gov.