Mercury News
Posted: 12/22/2008 11:37:14 PM PST
A one-time computer salesman who rose through the ranks to help build Fry's Electronics into a robust national retailer is facing allegations that he defrauded the San Jose-based company out of $65 million, much of which he used to pay off enormous gambling debts in Las Vegas.
Ausaf Umar Siddiqui, 42,who goes by "Omar" and has been Fry's vice president of merchandising and operations, appeared in federal court Monday, where prosecutors filed a complaint that alleges he was involved in a "secret kickback scheme to defraud Fry's Electronics of millions of dollars."Fry's executives didn't know about the illegal kickbacks, the federal complaint states. The alleged scheme occurred from 2005 until mid-October when a Fry's high-level employee walked into Siddiqui's office at 600 E. Brokaw Road and saw confidential spreadsheets, letters and extraordinarily high commission amounts on Siddiqui's desk.
Siddiqui is expected to be formally charged in U.S. District Court on Jan. 15, on counts of money-laundering and wire fraud.
According to the complaint, which was unsealed Monday, Siddiqui convinced Fry's that the company should eliminate sales representatives on his accounts, and instead, he'd act as a middleman between vendors and Fry's. He promised that he'd save Fry's a lot of money that way. But instead, the complaint alleges, he ended up charging exorbitant commissions — up to 31 percent, or 10 times the normal amount — to the vendors, which he funneled to his own "straw" company PC International. Vendors were guaranteed steady business, so Siddiqui would have a steady cash flow to pay off casinos. Siddiqui spent $162 million in three years at just two of his favorites, the MGM Grand Casino and Las Vegas Sands Casino, according to his bank statements detailed in the complaint written by IRS Agent Andres Gonzalez.
The complaint says Siddiqui made "secret, backroom sales contracts to vendors, and in return, vendors gave him a kickback."
"It was his responsibility to find Fry's the best price," said IRS spokeswoman Arlette Lee. "He was allegedly causing Fry's to overpay millions on merchandise." None of the vendors are household names.
After seeing the documents on Siddiqui's desk, the Fry's employee called the Internal Revenue Service. Federal agents swarmed Fry's corporate headquarters Friday and arrested Siddiqui, taking him away in handcuffs. Stunned co-workers watched as he was taken away.
Siddiqui was a "longtime friend" of John Fry, said Fry's spokesman Manuel Valerio. The reaction of employees and management to Siddiqui's arrest, he said, "is one of surprise and shock — and that's an understatement."
He made it clear, however, that "anything that may have taken place that may have been wrongful, Fry's as a company has not been financially harmed nor have any of our customers been harmed through the purchase of products," he said.
For his part, a clean-shaven Siddiqui appeared worried and serious in court today. He stood mostly silent, wearing the standard bright orange shirt of the Santa Clara County jail, where he was held over the weekend. Through his criminal attorney, Sam Polverino, he declined comment.
U.S. District Court Judge Richard Seeborg altered Siddiqui's no-bail conditions today, allowing him to post $300,000 bond and be monitored with an electronic bracelet. The judge also ordered Siddiqui to stay away from Las Vegas, and was assured through Siddiqui's lawyers that he wouldn't be flying there anymore to on the Fry's corporate jet, or casino-paid jets, which he apparently has done before.
"I know you do a great deal of travel to Las Vegas," Seeborg said. "That's not allowed anymore. Nevada is off limits."
Before setting his lowered bail, Assistant U.S. Attorney Thomas Moore and defense attorneys discussed how much Siddiqui is worth; revealing that he owns a $1 million Palo Alto condominium and a Ferrari.
A woman who appeared in court on Siddiqui's behalf declined comment. During the court hearing, conversations in court also revealed that Siddiqui has no close family; he is "estranged" from his siblings and his parents are deceased. He has no wife or children, and according to his civil attorney, who appeared as a "friend of the court," Siddiqui has several casinos after him to pay off gambling debts.
How much does he owe the casinos?
"I don't know the answer to that question," said Eric Sidebotham, an attorney who represents clients facing collections. "It's very complex."
In general, Sidebotham said he has seen too many "very successful men, single, middle-age fall into a gambling addiction trap. They just get in and they can't get out."
According to the criminal complaint, Siddiqui began working at Fry's Electronics in 1988, three years after the company was founded. He landed in one of the top positions of Fry's management, after working his way up from salesman, to department manager, to director of advertising to vice president of merchandising in 2003, where he was responsible for all of Fry's purchasing, and supervised 120 employees. He earned an annual salary of $225,000 at Fry's, which has 34 retail stores nationwide, and was listed in Forbes Magazine in 2007 as having 14,000 employees and generating a revenue of $2.35 billion.
The vendors that Siddiqui worked with include: Phoebe Micro Inc., Lead Data International, U.S. Media Technologies, and Elite Group Computer Systems. The companies sell a variety of computer equipment, wireless cards, Internet cameras. Some of the correspondence between the companies and Siddiqui were discovered on Siddiqui's desk when the Fry's informant saw them one day, and other documentation was discovered in Siddiqui's trash on Nov. 24.
Lee, the IRS spokeswoman, wouldn't comment specifically on whether or not these vendors acted illegally, but she did say: "In a typical case, we'd make contact with anyone who is alleged to be involved. We're going to want to talk to them to see what they know."
http://www.mercurynews.com/crime/ci_11293319
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