On March 10, 2017, the U.S. Department of Justice and the Securities and Exchange Commission charged two former iPayment Inc. executives with masterminding an accounting scheme to embezzle millions of dollars from the firm. In a parallel action, the U.S. Attorney's Office for the Central District of California filed criminal charges against the two men involved.
"As alleged in our complaint, these executives manipulated iPayment's internal accounting systems, lied to the external auditor and caused approximately $11.6 million in losses to the company," said Sanjay Wadhwa, Senior Associate Director of the SEC's New York Regional Office.
From 2008 to 2012, iPayment's then-Senior Vice President of Sales and Marketing, Nasir Shakouri, and then-Executive Vice President and Chief Operating Officer, Robert Torino, were reportedly reimbursed on personal credit cards for expenses never paid to third-party vendors. The SEC accused both men of conspiring with vendors to inflate invoices and receive kickbacks from the overpayments, and improperly claiming commissions and bonuses that were diverted in various ways.
Shakouri and Torino apparently did not act alone. Three other iPayment executives – Bronson Quon, John Hon and Jonathan Skarie – were also charged in the SEC complaint for their alleged participation in falsifying books and records to hide the thefts of corporate funds, and being rewarded by using misappropriated funds. The SEC is seeking disgorgement of the ill-gotten gains, interest and penalties, and bars from holding corporate officer roles.
iPayment issued the following statement, "As publicly reported by the Company [iPayment] in 2012, the Company was the sole victim of the embezzlement schemes, and no merchants, agents or other business partners of the Company were affected." It also noted that "the Company has implemented controls to address and prevent these occurrences in the future" and that the ruling "brings to a close a regrettable period."
On Feb 22, 2017, iPayment filed a separate complaint with the Supreme Court of the State of New York against former iPayment Chief Executive Officer Carl Grimstad and his spouse, Jessica Grimstad, seeking over $445,000 in compensation "as the result of the pattern of abuse he and his wife engaged in at the expense of the Company's shareholders and other constituents." Grimstad served as CEO from 2011 to Nov. 24, 2016, when he was officially terminated.
Among the allegations cited, the lawsuit outlines the embezzlement charges brought against former employees, Grimstad's permanent ban from the Electronic Transactions Association after publicly assaulting an attendee at an ETA event, and a laundry list of personal expenses that included escort services, a $288,000 hotel stay while the couple relocated from Nashville to New York, $70,000 for clothing, and more.
In addition to being forced to restructure itself in 2014, iPayment has since taken action to change course for the 150,000 small and midsize businesses it serves.
On Nov. 25, 2016, iPayment appointed O.B. Rawls IV as President, CEO and board member, through a unanimous decision by its board. Rawls most recently served as Senior Vice President and General Manager, Partner Solutions at First Data Corp. Shortly thereafter, Philip Ragona rejoined the company as Executive Vice President and General Counsel. Rounding out the executive team, payments industry veteran Greg Cohen joined iPayment as Chief Operating Officer in 2014.
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