Feb 25, 2010 - and credit cards to consumerc, small business and corporations. ... responsibility of detecting and repor
I4IEHAEL l(. JERNES Clerkof the SuperiorEourt Et,llErUH llmle'IEruty Dab0U$n010 lim 12:S:52 Hriptlon mmt cAs[BE0l0#651 cll,ll lfl fll$r.Allfi sl.m
I
RichardW. Shapiro(#005949) LAW OFFICESOF RICHARDW. SHAPIRO 2 2398E, Camelback Road,Suitel0l0 Phoenix,A285016 5 Tel: (602)912-3888 Fax: (602)912-3898 4
[email protected] 5
TOTRL ffiilII $1.M hict$ 056,1506
EACANO'MALLEY & AVENATTI.LLP M.ichaelJ. Avenatti, CA Bar No. 206929Qro hac vice applicationpending)
6 AlexanderL. Cont!, CA Bar No. 155945(pro hac vice applicationpending) fg,gtt!. Sims,_CABq No. 234148@ro hac vice applicition pending)
7 450 Newport CenterDrive, SecondFloor
l0
Newport Beach,CA92660 Tel: (949)706-7000 Fax: (949)706-7050
[email protected] [email protected] [email protected]
ll
Attorneysfor Plaintiff KossCorporation
I 9
t2 t3
SUPERIORCOURTOF THE STATEOF ARTZONA
l4
IN AND FORTHE COUNTYOF MARICOPA
l5 l6 l7 l8
KOSSCORPORATION, a Delaware Corporation,caseNo. cv2010_00 6631 Plaintiff, vs.
COMPLATNTFOR:
I. AMERICANEXPRESS COMPANY,a New t 9 York Corporation; AMERICANEXPRESS 2. TRAVELRELATEDSERVICES COMPANY, 3. 20 INC.,a New York Corporation; AMEX CARD 4. SERVICESCOMPANY,a DelawareCorporation;5. 2 l DECISIONSCIENCE,a business entity,-form unknown; PAMELAS. HOPKINS,anindividual; 22 andDOESI through50,inclusive, 23 24 25 26 27 28
Defendants.
AIDING AND ABETTINGBREACH OF FIDUCIARYDUTY; AII'ING AND ABETTINGFRAUD; COMMONLAW CONVERSION; STATUTORYCONVERSION;and NEGLIGENCE
I
Plaintiff KossCorporationherebyallegesasfollows:
2 3 4
PARTIES l.
PlaintiffKoss Corporation("Plaintiff," "Koss" or "the Company")is, and at all relevant
5 times was, a DelawareCorporationwith its principal place of businessin Milwaukee, Wisconsin. 6 Koss presentlydesigns,manufacturesand marketsa wide variety of high-fidelity headphoneproducG 7 to customersall over the world. Koss is a publicly tradedcompanylistedon the NASDAe. 8 9
2-
On information and belief, DefendantAmerican ExpressCompany is a New york
l0
corporationdoing businessin the State of Arizona and in Maricopa County. American Express
ll
Company,on informationand belief, is a worldwide financial servicescompanythat providescharge
l2
and credit cardsto consumerc,small businessand corporations.On informationand belief, Defendant
t 3 American ExpressTravel Related ServicesCompany,Inc. is a New york corporationrelated to t 4 DefendantAmerican ExpressCompanythat does businessin the Stateof Arizona and in Maricopa t 5 County. On information and belief, DefendantAMEX Card ServicesCompany is a Delaware l 6 corporation related to DefendantAmerican ExpressCompany that does businessin the State of t 7 Arizona and in MaricopaCounty. DefendantsAmericanExpressCompany,AmericanExpressTravel l8
Related ServicesCompany, Inc., and AMEX Card ServicesCompany are referred to collectively
t 9 hereinas "DefendantAMEX" or "AMEX." AMEX, on informationand belief, hasnumerousoffices 20 in and throughoutMaricopaCounty, includinga facility locatedin the City of Glendalethat employs 2 l approximately7'000 people("the GlendaleFacility"). On informationand belief,AMEX's business 22 operations at the Glendale Facility include, among other things, a group charged with the 23 responsibilityof detectingand reportingsuspiciousactivity, fraud and financial crimes in connection 24 with the useof AmericanExpresschargecards('the FraudoperationsGroup"). 25 26
3.
On information and belief, DefendantDecision Scienceis a businessentity, form
27 unknown, that is owned and/or relatedto DefendantAMEX and that does businessin the State of 28 Arizona and in MaricopaCounty.
I 2 3 4
4.
On information and belief, DefendantPamela S. Hopkins (.,Hopkins") is a natural personwho residesin MaricopaCounty,Stateof fuizona. Ms. Hopkins, at all relevanttimes, held the title of Vice Presidentand was employedby AMEX at the GlendaleFacility in the Fraud Operations Group.
5 6 7
5.
Defendantshavecausedthe eventscomplainedof hereinto occur in MaricopaCounty,
Stateof Arizona. Defendants,and eachof them,havepurposelyengagedin the activitieswhich form
8 the basisfor this Complaintin MaricopaCounty,Stateof Arizona. On informationand 9
belief, AMEX
is duly authorizedto do businessin the Stateof Arizona and has conductedbusiness in the Stateof
l 0 Arizona on a systematicandcontinuousbasis. 1l t2
6.
The true namesand capacitiesof Defendantsnamedherein as DOES I through 50 are
t 3 unknown to Plaintiff who, therefore,suesthesedefendantsby such fictitious narnes. plaintiff will L 4 amend this complaint to show the true names and capacitieswhen they have been
ascertained.
l5 l6 t7 t8 l9
Plaintiff is informed and believesand thereonallegesthat at all times mentionedherein, eachof the Does I through 50 were the agent,joint venturer,partner,alter ego, co-conspirator, aider and abettor, and/or employeeof each of the other Defendantsand at all times mentionedhere each was acting within the scopeof such agency,joint venture,partnership,alter ego relationship,conspiracy and/or employment.
20 2l
22
FACTUAL..BACKGROUNT) 7.
Plaintiffincorporates by reference paragraphs I through6 of this Complaint.
8'
Kossis a designer,manufacturer andmarketerof high-fidelityheadphones andaudio
23 24
25 products. JohnKoss foundedthe Companyin Milwaukee,Wisconsin,in the 1950'sand, in the 26 1960's,the Companydevelopedthe KossStereophone. Sincethattime,the Companyhasdesigned, 27 manufactured and marketedhigh'fidelityheadphones andotheraudioproducts,JohnKossand
his
28 sonsMichaelKossandJohnKoss,Jr.togetherowna majorityof thesharesissuedby the Company.
t 2
9,
Sujata"Sue" Sachdeva("Sachdeva")was hired by Koss in the 1990's and eventually
3 became the Vice President of Finance at the Company. Sachdevaoversaw Koss,s accounting 4
operationsand supervisedKoss's accountingdepartment. As an offrcer of the Company, Sachdeva
5 owed Koss fiduciary duties, including the duty of loyalty and to act in the best interests of the 6 Company and its shareholders. Sachdevareceived cash compensationtotaling approximately 7
$165,000from Koss in 2008 and was terminatedby the companyin December2009. Sachdeva, at all
8 relevanttimes,maintainedpersonalcardmemberaccountswith AMEX in her own name. 9 l0 ll
t2 l3 t4 l5
l0'
On information and belief, in or about 2007, American ExpressBank lntemational
(*AEBI") was relatedto DefendantAMEX or otherwisewas an AMEX entity. DefendantAMEX and AEBI, at all relevanttirnes,were and are requiredto comply with the Bank SecrecyAct (..BSA') 3l U'S'c. $ 531I et seq.' which requiresfinancial institutionsto implementprogramsdesigned to detect and report suspiciousactivity that rnight be indicative of financial crimes. The United Statesof America commencedcriminal proceedingsagainstAEBI atlegingviolationsof the BSA in connection
l 6 with the "Black Market Peso Exchange"and Drug Money Launderingthrougb parallel Cunency l 7 ExchangeMarkets. Subsequently,AEBI and the United Statesof America enteredinto a Deferred l8 l9
Prosecution Agreement whereby AEBI (i) acknowledgedresponsibility for the conduct of its employees as set forth in a detailed Factual Statementattached to the Deferred prosecution
20 Agreemen! (ii) agreedto demonstratefuture good conductand full compliancewith the BSA and all 2 l of its implementingregulations;and (iii) agreedto settlecivil and criminal claims by paying
the sum
22 of $55,000,000.A copy of the DeferredProsecutionAgreementand accompanyingFactual Statement 23 are attachedas Ex' l. On informationand belief, the sum of $55,000,000was paid by or caused to be 24 paid by DefendantAMEX and/orAEBI. 25 26
ll.
In responseto the publication of the Deferred ProsecutionAgreement, Defendant
27 AMEX, through its duly authorizedspokesperson, announcedthat substantialefforts to augmentand 28
I
strengthen BSA complianceprogramswould be madeand,further,that AMEX had committedto
2
conducting its business with thehigheststandard of integrity,compliance andcontrol.
3 4
6
DefendantAMEX subsequentlycreatedan organizationcalled the ,,Financial lntelligenceUnit" (the *FIU"). The FIU, on informationand belief; was chargedwith the responsibilityof evaluatingreportsof suspicious or potentiallysuspiciousactivityand determining
7
whethersuchsuspiciousactivity wasrequiredto be reportedto the FinancialCrimesEnforcement
5
12.
8 Network("FinCEN"),an agencyof the UnitedStatesDepartment of the Treasury,and/orotherthird 9 partiesthat may be the victim of financialcrime,i.e. Koss. On informationand belief,Defendant l0 ll
AMEX, as a financial institutionsubjectto regulationunder the BSA, was requiredto report suspiciousactivity throughthe submission of Suspicious Activity Reports(,SARs"). Information
l2
providedin a SARpresents FinCENwith a methodto identifufinancialcrimes. On informationand
l3
belief, AMEX hired Rick Small, Aaron Karczner,ChristopherProkop,Anget Nguyen,Steven
l4
Pichardo, andZachRobockaspartof theFIU AMEX assembled.
l5 l6
13'
DefendantAMEX subsequently createda fraud operationsgroup chargedwith the t 7 responsibilityof analyzingfinancialactivity relatedto card memberaccountsin order to detect I E financialcrimeVfraudandsuspiciouVpotentially suspicious activity(the"FraudOperations Group"). l9
On informationandbelief,Detbndants Hopkinswaschargedwith the responsibility of managingthe
20 FraudOperationsGroup. On informationandbelie( the FraudOperations Groupalsoincludeda
2r
gouP knownasthe FinancialCrimesReportingUnit (the"FCRU"). The FCRUincludedemployees
22 RichardAngel, Brian Burkhardt,and KimberlyLundie,amongothers. The FCRU,amongother 23 things,was chargedwith the responsibilityof analyzingbank wire transactions usedto pay card 24 memberaccounts. 25 26
14.
Beginningon or aboutFebruary19,2008,Sachdevabegansendingwire transfersfrom
27 Koss bank accountsat various financial institutionsto DefendantAMEX to pay for personalcharges 28 incurred by Sachdevaon her personalAmerican Expresscharge cards. Sachdevacontinued this
I
2
conduct up and until approximatelyDecember18, 2009. During this approximate two year time period, (i) Sachdevawire transferredapproximatelySixteenMillion Dollars ($16,000,000)from Koss
3 accountsto DefendantAMEX, (ii) the wired funds were receivedby DefendantAMEX, and (iii) 4 DefendantAMEX purposelyapplied the wired funds to balanceson Sachdeva'spersonal
American
)
Express charge cards. Sachdev4 in making the aforementionedwire transfers, did so without
6
authorizationfrom the Companyand in violation of her fiduciary duties to Koss as an officer of the Company. In addition, Sachdevafraudulently concealedand failed to disclose her conduct to the offrcersand directorsof the Company.
7 8 9 t0 ll
15.
Prior and subsequent to February19,2008, Sachdevasentcashier'schecksdrawn on
Company accountsheld at Park Bank in Milwaukee, Wisconsin,to DefendantAMEX to pay for
t 2 personal charges incurred by Sachdevaon her personal American Express charge cards. On t 3 informationand belief, millions of dollars of Koss's funds drawn on cashier'scheckswere (i) sent by
l4
Sachdevato DefendantAMEX, (ii) receivedby AMEX, and (iii) appliedby AMEX to balancesowed
l5
on Sachdeva'spersonalAmerican Expresschargecards. Sachdeva,in using cashier'schecksdrawn
l6
on Company accounts,did so without authorizationfrom the Company and in violation of her
t7
fiduciary duties to Koss as an offtcer of the Company. In addition, Sachdevafraudulentlyconcealed
l8
and failed to discloseher conductto the officersand directorsof the company.
l9 20 2l
16.
Defendant AMEX, prior and subsequentto the creation of the FIU, the Fraud
OperationsGroup, and the FCRU, failed to effectively developand maintain a prograrndesigned to
22 detect and report suspicious activity that might be indicative of financial crimes, ineluding 23 embezzlement.On information and betief, DefendantsAMEX and Hopkins further failed to develop 24 and maintain an effective program in order to properly review and analyze financial transactions 25 involving the payment from a third-party (i.e. Koss) to a card member's (Sachdeva)personal 26 AmericanExpressaccount,whetherby check,cashier'scheckor wire transfer. 27 28
I
17.
On information and belief, beginningon February 19,2008 and continuing through
2 2009' DefendantsAMEX, Hopkins and/or DefendantDecision Science, failed to review and/or 3 inadequatelyreviewedwire transfersfrom Koss'saccountsto DefendantAMEX by which wired 4 ) 6 7 8
funds were being used by Sachdevato pay personalchargesincurred by her on her personalAmerican
Expresschargecards. For instance,on or aboutOctober28, 2008, Defendant AMEX leamedthat (i) in excessof $120,000 had been wire transfenedby Sachdevafrom Koss' corporateaccountsto DefendantAMEX on or aboutoctober 20 and 22,2008,(ii) the fundshad beenreceivedand posted by Defendant AMEX for Sachdeva'i personaluse, and (iii) that the wired funds were being used by
9
Sachdevato pay personal charges(i.e. high end retail clothing charges)on her personal charge
l0
accounts. On information and belief, in violation of its internal policies and procedures, Defendant
ll
AMEX subsequentlydid little to no investigationinto the impropertransactionsother than to confirm
1 2 through Dun & Bradstreetthat Sachdevawas employedby Koss as the Vice presidentof Financeof l 3 the Company. Armed with this information, including with the knowledge from her credit card l 4 application and other documentsthat Sachdevamade approximately$200,000per year, Defendant l5 l6
AMEX then expresslyapprovedand/or "decisioned"the October 20 and 22, Z}OEtransactions as *COMP l" transactions, concludingthat the transactionsdid not constitutesuspiciousactivity, that no
t 7 further analysiswas necessary,that no further inquiry or investigationshould be undertaken,and that l8
Koss shouldnot be alertedto a potentialembezzlement by oneof its officers.
l9
2A
18.
On information and belief, from October28, 2008 through 2009, DefendantsAMEX
2 l and Hopkins subsequentlyapprovedand/or decisionedmore than fifty (50) individual bank wire 22 transfersAMEX received from Koss's corporatebank account(s)for personalchargesincuned by 23 Sachdevaon her personalAmericanExpresschargecards. In doing so, DefendantsAMEX, Hopkins 24 and/orDefendantDecisionScience,failed to follow AMEX policiesand procedures,failed to properly 25 rcview the transactionsfor possible fraud/embezzlementand failed to properly alert Koss of 26 Sachdeva'sactivities' On information and beliel DefendantsAMEX, Hopkins and/or Defendant 27 DecisionSciencepostedand approvedthesefraudulentpaymentsso that Sachdeva"who had grown to 28
I
be one of AMEX's premiercustomers,could continueto useher American
Expresschargecardsat a
2 rateof approximately$1,000,000a month,thusenrichingDefendantAMEX at the expenseof Koss. J
4 s 6 7 8 9
t0 ll
t2 13 l4 l5 l6 t7 l8 l9
19'
On informationand beliefl in or aboutAugust,2009,and notwithstanding prior COMp
I decisions by AMEX in connection with Sachdeva'spersonal accounts, FCRU analyst Brian Burkhardtinquired into bank wire transfersfrom Koss accountsthat were madeon June 19, 2009 for $84,627.03;Jvne22,2009 for $48,460.91; June 25,z0og for $41,4g0.66; and June29,2009 for $130,231'00' FCRU analyst Burkhardt then retrieved and analyzed the spending activity for Sachdeva'spersonalchargecardsand determinedthat the majority of her chargesrelatedto high-end retail purchasesand on-line purchases,including jewelry, shoes, furs, and designer clothing. Burkhardt also noted that the retail chargesfrequently were made in high dollar, round amounts. Analyst Burkhardt,on informationand belief, then concludedthat between October200g and August 2009' Sachdevahad spentapproximately$3,500,000.00on personalretail items,all of which had been paid for by bank wire transfersfrom Koss bank accounts. Analyst Burkhardt then determinedfrom merely surfing the web (Forbes.com),that Sachdeva'stotal compensation for 200g was reportedat approximately $206,000,00and subsequentlyconcluded that Sachdeva was living far above her means' This conclusion was not surprising in light of other information in DefendantAMEX's possessionwhich, on informationand belief, showedthat Sachdeva had madetessthan $200,000per year since at2004.
20 2l
20'
on informationand beliei the resultsof analystBurkhardt'sinvestigationwas 22 escalated throughthe FCRUto FRCUmemberRichardAngel,who concludedthat Sachdeva was 23 embezzling moneyfrom KossandusingKoss'smoneyto payfor extravagant personalexpenses.on 24 informationand belief, Mr. Angel alertedDefendantHopkinsand others at AMEX regardingthe 25 resultsof analystBurkhardt'sinvestigation in earlyAugust2009. FCRUmemberAngelthenprovided 26 theresultsof theinvestigation to FIU employee StevenPichardo on August4,2009. FIU thenadvised 27 that it would look into the matter further. FCRU memberAngel, on informationand belief, 28 subsequently spokewith FIU memberPichardoandstatedthat AMEX shouldimmediatelyconlacr
1
Koss and the appropriate authorities, including the Federal Bureau of Investigation, because
2
Sachdeva'sconductwas a clearcaseof embezzlement.
I
3 4
21.
On informationand belief, despitethe findingsof Burkhardtand Angel in August 2009,
5
DefendantsAMEX and Hopkins, during the time period August 2009 through December 17, 2009,
6
purposelyfailed to notiS Koss regardingSachdeva'sconduct (which was ongoind and purposety
7
failed to timely alert law enforcementauthorities,notwithstandinghaving knowledgethat Sachdeva
8
was engagedin a widespreadembezzlementof Koss funds. on information and belief, Defendants
9
AMEX and/or Hopkins failed to timely notify Koss and law enforcementbecauseSachdevawas one
l0
of AMEX's premier customerswho, through her extravagantspending,was enriching Defendant
ll
AMEX at the expenseof Koss on a daily, if not hourly, basis, On or about Decemberlg, 2009,
t2
DefendantAMEX finally contactedKoss and inquiredabout Sachdeva'swire tansfers, Immediatety
t 3 thereafter,Koss contactedthe FederalBureauof Investigationand terminatedSachdeva,who presently t 4 awaits trial on numerouscrimes concerningto her embezzlementof tens of miflions of dollars from t 5 Koss. t6 t7 l8 l9
22.
on informationand belief, Sachdeva causedapproximately SixteenMillion Dollars ($16,000,000) in wire transfers to bemadefrom Koss'saccounts to Defendant AMEX duringthetime period February19, 2008 until her terminationin December2009. On informationand belief,
20 Sachdeva alsomadefraudulentpayments duringthistimeperiodto Defendant AMEX andotherthird 2l
partiesusing cashier'schecksdrawnon Kossbank accountstotalingapproximately Four Million
22 Dollars($4,000,000). On informationandbeliei Sachdeva, duringthis timeperiod,alsofraudulently 23 withdrewapproximately $200,000 in KossfundsfromParkBankusingmanualchecks. 24 25
23.
EventhoughPlaintiffhas/had chargecardsissuedto it by AmericanExpressCentruion
26 Bank (an entity 4! namedin this lawsuit)in connectionwith PlaintifPsbusinessoperations(the 27 "BusinessCards'),Plaintiffis p! seekingto recoveranydamages by way of this lawsuitin anyway 2 8 relatedto: (i) chargesmadeon anyof the Business Cards;1il1improperuseof the Business Cards;
I
and/or (iii) any written contract or agreementbetweenPlaintiffl on the one hand, and American
2 Expresscenturion Bank or any Defendantnamedhercinon the otherhand. 3 4
COUNT ONE
5
(Aiding and Abetting Breachof.FiduciaryDuty againstDefendantsAMEX,
6
DecisionScience,Hopkinsand DOES I through50)
7 8 9
24'
Plaintiff incorporatesby referenceparagraphsI through23 into this causeof aotion as
if fully set forth herein.
l0 il
25.
Sachdeva,at all relevanttimes, was an employeeand/or officer of the Companyand,
t 2 theretbre,owed Koss a fiduciary duty which included,amongother things, duties of loyalty, fidelity, l 3 honesty,and integrity' In addition,Kossplacedtrust and confidencein Sachdeva"including
entrusting
l4
her with variousffFets of the Company.
l5
r6
26-
Sachdevabreachedher fiduciary duty owed to Koss in that sheusedfunds belongingto
t7
the Company,through variousmethodsincludingthe useof bank wire transfersand cashier,s checks,
l8
to enrich herself and pay for personalchargeson her personalAmerican Expresscharge card. Said conductcausedsubstantialfinancial harmand damageto Koss andcontinuesto hard and damageKoss
t9
20 on a daily basis. 2l 22
27.
DefendantsAMEX, DecisionScience,and Hopkins,individuallyand collectively,(i)
23 knew that Sachdevawas employed by Koss and further knew that she held the position of Vice 24 Presidentof Finance;(ii) knew that Sachdevawas engagedin a continuouspattem of extraordinary 25 personalretail spending;(iii) knew that funds originatingfrom Companyacoountswere being usedto 26 pay for the millions of dollars in personalchargesSachdevaincurred on her personal American 2 7 Expresscards,often by making paymentsin largerounddollar numbers;(iv) believed
that Sachdeva,s
28 annualcompensationfrom Koss was approximately$200,000andthat shewas spending far l0
aboveher
I
means;and (v) knew that Sachdeva'sconductwas tortious and constituteda breachof her fiduciary
2 duty to Plaintiff. 3 4
28.
DefendantsAMEX, DecisionScience,and Hopkins substantiallyassistedand/or
5
encouraged Sachdeva in breaching the fiduciarydutysheowedto Plaintiffin that they,amongother
6
things:(i) failedto timely andeffectivelydevelopandmaintaina program,includingthe trainingof
7
employees, contractorsand agents,designedto detectand reportsuspiciousactivity that might be
E indicativeof financialcrimes,includingembezzlement, notwithstanding havingpaid $55,000,000 in 9
finesandpenaltiesto the UnitedStatesof Americafor failingto detectandreportfinancialcrimesin
1 0 connectionwith AEBI and committingto conductDefendantAMEX's businesswith the highest ll
standardof integrity, complianceand control; (ii) failed to follow their own intemal policies,
t2
procedures, standards andguidelines, includingby failingto properlytrainemployees, contractors and
l3
agents'in connection with thedetectionandreportingof suspicious activitythatmightbe indicativeof
l4
financialcrimes;(iii) failedto timelydiscloseto KossSachdeva's useandpattemof useof cashier's
l5
checksdrawnon Companyaccounts heldat ParkBankto payfor chargesincurredby Sachdeva on her
l6
personalAmericanExpresschargecard;(iv) failedto timelydiscloseto Kossthe useandpatternof
l7
useof bank wire transfersfrom Kossaccountsto pay balanceson Sachdeva's personalAmerican
l8
Expresschargecards;and (v) continuouslyaccepted and postedpaymentsto Sachdeva's personal
l9
chargeaccountsin the form of cashier'schecksandbankwire transfersoriginatingfrom Kossbank
20 acsounts, includingwell afterFCRUmembers AngelandBurkhardtadvisedAMEX management that 2l
Sachdeva wasembezzling fundsfromKossin orderto payherpersonal AmericanExpress charges.
22 23
29,
As a proximateresultof the substantial assistance and/orencouragement providedby
24 Defendants AMEX, DecisionScience,andHopkins,Plaintiffsustained damage,financialharmand 25 lossesin an amountin excessof TwentyMillion Dollars,with an exactamountto be provenat trial. 26 Further,Plaintiff is entitledto recoverpunitiveand exemplarydamagesfrom Defendants AMEX, 27 DecisionScience,and Hopkinsin that Sachdeva's breachof fiduciaryduty, which was willful, 28 ll
I
wanton' malicious,reckless,and in consciousdisregardof the rights of Plaintifi is attributableto these
2
Defendantsas aidersand abettors.
3
COUNT TWO
4
(Aiding and Abetting FraudagainstDefendantsAMEX, DecisionScience,
5
HopkinsandDOES I rhrough50)
6 7 8
30.
Plaintiff incorporatesby referenceparagraphsI through 29 into this causeof action as
if fully set forth herein.
9 l0
31.
Sachdeva,at all relevanttimes,was an employeeand/orofficer of Koss and, therefore,
ll
owed Koss a fiduciary duty which included,amongother things,a duty of disclosure,loyalty, fidelity,
t2
honesty,and integrity. In addition,Kossplacedtrust and confidencein Sachdeva,including entrusting
l3
her with the assetsof the Company.
t4 l5 l6
32,
Sachdeva,by virtue of her positionasan employeeand as the Vice Presidentof Finance
for the Company,was undera duty to Kossto disclosethe factsand eircumstances surroundingher use
t 7 of Company funds to pay for personalchargesincuned by her on her personalAmerican Express l8
chargecards,including by use ofcashier's checksand bank wire transfers, Sachdevaneverdisclosed
l9
the factsand circumstancessurroundingher embezzlement of Companyfunds to oflicers and directors
20 of the Company. 2l 22
33,
Sachdevaconcealedand intentionally prevented the officers and directors of the
2 3 Companyfrom acquiringmaterialinformationregardingher useof Companyfundsto pay for personal 24 chargesincurredon her personalAmericanExpresschargecard; 25 26
34'
DefendantsAMEX, Desision Science,and Hopkins, individually and collectively, (i)
27 knew that Sachdevawas employedby Koss and further knew that she held the position of Vice 28 Presidentof Finance;(ii) knew that Sachdevawas engagedin a continuouspatternof extraordinary l2
I
personalretail spending;(iii) knew that fundsoriginatingfrom Companyaccountswere being usedto
2
pay for the millions of dollars in penonal chargesSachdevaincurred on her personalAmerican
3
Expresscards,often by making paymentsin largerounddollar numbem;(iv) believedthat Sachdeva's
4
annualcompensationfrom Koss was approximately$200,000and that she was spendingfar aboveher
5 means;and (v) knew that Sachdeva'sconductwas tortious and constituteda breachof her fiduciary 6
duty to Plaintiff.
7 I
35.
Defendants AMEX, Decision Science, and Hopkins substantially assisted and/or
I
encouragedSachdevain her fraudulentconductin that they, amongother things: (i) failed to timely
r0
and effectively developand maintaina program,including the training of employees,contractorsand
ll
agents,designedto detectand report suspiciousactivity that might be indicative of financial crimes,
t 2 including embezzlement,notwithstandinghavingpaid $55,000,000in fines and penaltiesto the United l3
Statesof America for failing to detect and report financial crimes in connectionwith AEBI and
l4
committing to conductDefendantAMEX's businesswith the higheststandardof integrity, compliance
l5
and control; (ii) failed to follow their own internal policies, procedures,standardsand guidelines,
l6
including by failing to properly train employees,contractorsand agents, in connectionwith the
t 7 detectionand reportingof suspiciousactivity that might be indicativeof financialcrimes;(iii) failed to l 8 timely discloseto Koss Sachdeva'suse and patternof use of cashier'schecksdrawn on Company t 9 ascountsheld at Park Bank to pay for chargesincunedby Sachdevaon her personalAmericanExpress 20 chargecard; (iv) failed to timely disclose'toKoss the use and patternof use of bank wire transfers 2l
from Koss accountsto pay balanceson Sachdeva'spersonalAmerican Expresschargecards;ard (v)
22 continuouslyacceptedand postedpaymentsto Sachdeva'spersonalchargeaccountsin the form of 23 cashier'schecksand bank wire transfersoriginatingfrom Kossbankaccounts. 24 25
36'
As a proximate result of the substantialassistanceand/or encowagementprovided by
26 DefendantsAMEX, Decision Science,and Hopkins Plaintiff sustaineddamage,financial harm and 27 lossesin an amount in excessof Twenty Million Dollars, with an exactamountto be proven at trial. 28 Further, Plaintiff is entitled to recover punitive and exemplary damagesfrom DefendantsAMEX, l3
I
DecisionScience,and Hopkinsin that Sachdeva's fraudulentconduct,which was willful, wanton,
2
malicious,reckless,and in consciousdisregardof the rights of Plaintiff, is attributableto these
3 Defendants asaidersandabettors. 4
COUNTTHREE
5
(CommonLawConversion AgainstDefendants AMEX andDOESI through50)
6 7 8
37.
Plaintiffincorporates by reference paragraphs I through36 into this causeofactionas
if fully setforthherein.
9 l0 ll
3E.
Plaintiff at all times, had the right to exercisepossession,dominion and control over
the funds in its possession,which were ultimately sentby cashier'scheck and bank wire transferto
1 2 DefendantAMEX. t3 T4 l5
39.
DefendantAMEX intentionallyexercisedcontrol over PlaintifPs funds and interfered
with Plaintiff s right of control over saidfundstherebyseriouslyinterferingwith Plaintiff s rights.
l6 t7
40.
The funds over which DefendantAMEX exercisedcontrol are specificallyidentifiable
l8
by the date, number and amountof eachcashier'scheck and the date,number and amountof each
l9
bankwire transfer. The fundsare furtherspecificallyidentifiableby the accountnumberto which they
20 were applied, as well as by the COMP I decisions. The funds are also in the natureof a special 2 l depositbecauseafter DefendantAMEX was on noticeof Sachdeva'swrongful and tortious conducl, 22 Defendant AMEX acceptedand continuedto accept funds originating from third-party accounts 23 ownedby Koss. 24 25
4l .
DefendantAMEX mayjustly be requiredto pay Plaintiff the full valueof the fundsand
26 shouldbe requiredto pay Plaintiff the full value of the funds. Plaintifl further, is entitledto recover 27 punitive and exemplarydamagesby virtue of DefendantAMEX's conversionof funds, which was 28 willful, wanton,malicious,reckless,and in consciousdisregardof the rights of plaintiff. t4
I
COUNT T'OUR
2
(ConversionUnderUniform CommercialCodeAgainstDefendantsAMEX
3
andDOES I tlrough 50)
4 5 6
42.
Plaintiffincorporatesby referenceparagraphsI through4l into this causeof action as
if fully set forth herein.
7 8
43.
Sachdevacausedfunds to issuefrom accountsownedby Koss and to be transferredto
9
DefendantAMEX, which acceptedsaid funds. Thesepaymentsand transfersconstitutedconversion
l0
of Koss's funds and were madein violation of A,R.S. section 47-3420. On inlbrmation and belief,
ll
Defendant AMEX's actions in acceptingsaid funds were not commercially reasonablein that
t 2 Defendant AMEX violated its prescribed internal procedures and/or its procedures varied l3
unreasonablyfrom generalbankingprocedurcsand usage.
t4 15 l6
44'
DefendantAMEX is liable to Plaintiff for the amountspaid for each such transfer.
Plaintiff, further, is entitled to recover punitive and exemplarydamagesby virtue of Defendants
t 7 AMEX and Sachdeva'sconversionof funds,which was willful, wanton,malicious,recklcss,and in 1 8 consciousdisregardof the rightsof Plaintiff,' l9 20
cpuNlFtvE
21
(NegligenceAgainstDefendantAMEX, Hopkinsand DOES I through50)
22 23
45.
Plaintiff incorporatesby referenceparagraphsI through44 into this causeof action as
24 if fully setforth herein. 25 26 2t
46.
DefendantsAMEX, and Hopkins, pursuantto AMEX's own intemal policies and
proceduresand AMEX's standardof carerequiringit to conductits businesswith the higheststandard
2 8 of integrity, complianceand control, owed Plaintiff a duty to use reasonablecare in connectionwith l5
I
approving,accepting andpostingfundsoriginatingfrom Kossaccounts for paymentof balances owed
2
by Sachdeva on her personalAmericanExpresschargecards. Moreover,onceDefendantAMEX
3 undertooka duty to reviewsuspicious wire Fansfers from Sachdeva usingKossfunds(i.e. in October 4
2008)'Defendant AMEX wasrequiredto performthereviewandinquiryusingreasonable care.
5 6 7
47.
DefendantsAMEX and Hopkinswere reckless,careless,negligent,failed to use
reasonable care,and breached theirduty to Plaintiffbecause, amongotherthings,theseDefendants:
8 (i) failed to timely and effectivelydevelopand maintraina program,includingthe training of 9 employees, contractorsand agents,designedto detectand reportsuspicious activity that might be l0
indicativeof financialcrimes,includingembezzlement, notwithstanding havingpaid $55,000,000 in
ll
finesandpenaltiesto the UnitedStatesof Americafor failingto detectandreportfrnancialcrimesin
l2
connectionwith AEBI and committingto conductDefendantAMEX's businesswith the highest
l3
standardof integrity, complianceand control; (ii) failed to follow their own intemal policies,
t 4 procedures, standards andguidelines, includingby failingto properlytrainemployees, contractors and l5
agents,in connection with thedetection andreportingof suspicious activitythatmightbe indicativeof
t6
financialcrimes;(iii) failedto timelydiscloseto KossSachdeva's useandpatternof useof cashier's
t 7 checksdrawnon Companyaccounts heldat ParkBankto payfor charges incurredby Sachdeva on her l8
personalAmericanExpresschargecard;(iv) failedto timetydiscloseto Kossthe useandpattemof
l9
useof bankwire ffansfersfrom Kossaccountsto pay balances personalAmerican on Sachdeva's
20 Expresschargecards;and (v) continuously acceptedand postedpaymentsto Sachdeva's personal 2l
chargeaccountsin the form of cashier'schecksandbankwire transfersoriginatingfrom Kossbank
22 accounts, includingwell afterFCRUmembers AngelandBurkhardtadvisedAMEX management that 23 Sachdeva wasembezzling fundsfromKossin orderto payherpersonal AmericanExpress charges. 24 25
48.
Further,TheUniformCommercial Code,includingbut not limitedto sections47-3103
26 and47-3406,establishes a duty on the part of Defendants AMEX and Hopkinsto exerciseordinary 27 carein accepting payments andbankwiretransfers. 28 t6
I
49.
Sachdevacausedfunds to issuefrom accountsowned by Koss and to be transferredto
2
DefendantAMEX, which acceptedsaid funds, On informationand beliet, thesetransferswere made
3
in violation of A.R.S. section 47-3406et seq. DefendantsAMEX and Hopkins failed to exercise
4
ordinarycare in taking the insur,rments and that failure substantiallycontributedto the lossessustained
5 by Plaintiff. On information and beliet DefendantsAMEX and Hopkins' actionsin acceptingthese 6 paymentsand transfers were not commercially reasonablein that Defendant AMEX viotated its 7 prescribedproceduresand/orits proceduresvariedunreasonablyfrom generalbankingproceduresand 8 usage. 9 l0 ll
50,
As a proximate result of the recklessness, carelessness, and negligenceof Defendants
AMEX and Hopkins, Plaintiff sustainedfinancial harm, damagesand lossesin excessof Twenty
t 2 Million Dollars,with an exactamountto be provenat trial. DefendantsAMEX and Hopkinsare liable l 3 to Plaintiff for the amountof eachsuchpaymentand transfer. Had DefendantsAMEX and Hopkins l4
exercisedreasonablecare,Plaintiffwould not havesustainedand insteadavoidedmillions of dollars in
t 5 financial lossesand harm. The conductof theseDefendantswas willful, wanton,malicious,reckless, l6
and in consciousdisregardof the rights of Plaintiff therebyentitling Plaintiff to an awardof punitive
t 7 andexemplarydamages. l8 t9 20 WHEREFORE,PlaintiffdemandsJudgmentagainstthe Defendantsas follows: 2l 22
l.
23 24 25
For compensatorydamagesin a just and reasonableamountand aceordingto proof at the time of trial;
2.
For a sum that is just and reasonable as and for exemplaryandpunitive damages accordingto proof at the time of trial;
26 27 28 t7
I 2
3.
Forcostsof suitincurredin connection with thisaction;and
3
4.
For suchotherandfurtherreliefasisjust in thepremises.
4 )
DATED:February lB,2010
LAW OFFICESOF RICHARD W. SHAPIRO
6 7 8
zuCHARDW. SHAPIRO
9
Attomeysfor Plaintiff KossCorporation
l0 ll
t2 l3 l4 t5 l6 t7 l8 l9 20 2l 22 23 24 25 26 27 28 l8
