Fry's Electronics VP faces criminal charges and lawsuit

Computerworld - A vice president at Fry's Electronics Inc. is facing the inside of two different courtrooms for allegedly running a kickback scheme that netted him tens of millions of dollars.

Ausaf Umar Siddiqui, former vice president of merchandising and operations at Fry's, has been charged in U.S. District Court in the Northern District of California with allegedly running a kickback scheme that defrauded the electronics retailer. Also, according to a report in the San Jose Mercury News, the San Jose-based electronics retailer is seeking the return of $10 million that Siddiqu allegedly borrowed and failed to repay. Siddiqui had worked at the company for the past 20 years.

Andres Gonzalez, a special agent with the IRS, investigated the case and wrote in the criminal complaint that an investigation was launched in October 2008 when a Fry's shareholder and upper-level manager contacted the agency and contended that Siddiqui was defrauding the company. Gonzalez noted in the complaint that the informant provided documents, such as spreadsheets outlining purchase orders and kickback amounts, to the IRS.

The privately held electronics retailer, founded in 1985, operates 34 stores in nine states.

According to the court filing, Siddiqui was hired by Fry's in 1988 as a salesman and then worked his way up the corporate ladder to various positions, including computer department supervisor and director of advertising. In 2003, he was appointed vice president of merchandising and operations at a salary of $225,000.

In his most recent position with the company, he was mainly responsible for buying all the products, such as computers, components and routers, that are sold in the company's stores.

Within the past few years, Siddiqui allegedly worked out a deal with Fry's executives that enabled him to work directly with some vendors, according to the court documents. However, allegedly unbeknownst to the company, Siddiqui made "secret, backroom deals" with certain vendors, according to the complaint. He is alleged to have awarded contracts to a small group of vendors in exchange for a kickback or commission of as much as 31% of the amount of the contract, it said. The government contends that that percentage is four to 10 times higher than what a traditional sales agent would receive.

To make up for the high kickbacks, the vendors charged Fry's Electronics more than market value for the merchandise, according to court documents. The IRS said that Siddiqui set up a fraudulent company called PC International LLC to which the vendors paid the kickbacks directly.

In a similar case, a former IT contractor for the city of Newark, N.J., pleaded guilty this past July to using his position to defraud Cisco Systems Inc. of millions of dollars.

Michael Kyereme, 41, of Piscataway, N.J., pleaded guilty in U.S. District Court in Newark to mail fraud and tax evasion in connection with the scheme. According to the U.S. Attorney's Office, Kyereme was an independent contractor hired by the city of Newark to handle IT support for municipal employees. As part of his plea agreement, Kyereme admitted that between January 2003 and March 2007, he requested and received Cisco replacement parts after fraudulently claiming that certain components in Newark's computer system had failed. Kyereme did not use these parts for the city but instead resold them to a third party in California and kept the proceeds.

And a little more than a year ago, a one-time civilian employee with the U.S. Department of Defense pleaded guilty to conspiring in a scheme that defrauded the government of $700,000. Lilia Delgadillo, 34, of El Paso, Texas, admitted to misusing a DOD pay-processing computer system to misappropriate the money while she was employed by the Defense Finance and Accounting Service at Fort Bliss. She pleaded guilty to one count of wire fraud.

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