October 25. 2011 2:00AM - Last modified: March 14. 2012 1:29PM

Koss reaches $1 million settlement with shareholders

  

Milwaukee-based headphone manufacturer Koss Corp., and its chief executive officer, Michael Koss, announced that they have agreed to a $1 million settlement with shareholders who filed a class action lawsuit against the company a lawsuit related to the embezzlement by the company's former vice president of finance, Sujata "Sue" Sachdeva.

Also, the company reached a settlement with the Securities and Exchange Commission in a lawsuit related to the Sachdeva embezzlement.

"The company and I entered into these settlements in order to close an unfortunate chapter in our company's history," Koss said. "The settlement with the (SEC) imposes no financial penalty on the company and requires us to comply with the law, which is exactly what we've always sought to do."

Sachdeva is currently serving an eleven year prison sentence for her crimes

"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. "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."

However, those audits failed to detect the embezzlement and underlying accounting fraud that was committed against the Company.

Koss pointed out that he previously and voluntarily reimbursed the company for excess bonuses that he received from the company that were based on profits that were eliminated in restatements following the embezzlement. His agreement in the settlement to further reimburse the company for the full amount of those bonuses reflects a decision not to enter into a debate over the SEC staff's interpretation of Section 304 of the Sarbanes-Oxley Act and related provisions contained in the Dodd-Frank Act, the company said.

"Regardless of the differing interpretations of Section 304, I believe that reimbursing this additional amount is just the right thing to do given the circumstances," Koss said.


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