Milwaukee-based Park Bank did not act in bad faith in issuing cashier’s checks that contributed to Sujata “Sue” Sachdeva’s embezzlement of $34 million over a 12 year period from Koss Corp., according to a state appeals court ruling issued Tuesday.
[caption id="attachment_138170" align="alignright" width="324"] Koss Corp. headquarters at 4129 North Port Washington Ave. in Milwaukee.[/caption]
“Although the transactions Sachdeva engaged in may appear suspicious or odd in hindsight, Koss has not cited any evidence to indicate that, in the larger context of Koss’s banking practices and the banking practices of Park Bank’s other corporate clients, the transactions were suspicious enough to put Park Bank on notice of Sachdeva’s misconduct,” Judge Lisa Stark, the District III deputy chief and presiding judge, wrote in her opinion.
Sachdeva’s embezzlement was discovered in December 2009 after an American Express employee reported her use of wire transactions to pay personal credit card bills to the company. The two companies settled a separate lawsuit in 2016 with Koss receiving $3 million, less some attorneys’ fees and other costs. Koss has recovered a net of $10.3 million since 2010, according to securities filings.
Sachdeva ultimately pleaded guilty to six counts of wire fraud in 2010. She was sentenced to eleven years in prison but was released in April of this year after having her sentence reduced.
The ruling comes almost exactly seven years after Koss first sued Park Bank in December 2010. The lawsuit initially alleged the bank was negligent is issuing cashier’s checks to Sachdeva. It was later amended to claim Park Bank violated the Uniform Fiduciaries Act. Milwaukee County Circuit Court Judge David Borowski granted Park Bank summary judgment in March 2016, dismissing the case and prompting Koss’ appeal.
Michael Avenatti, the lead attorney for Koss, indicated the appeals court ruling may not be the end of the case.
“This decision far from exonerates Park Bank, which willingly allowed Sachdeva to steal money from Koss. We are exploring our options,” Avenatti wrote in an email.
Dean Laing, an attorney for Park Bank, said the bank was "pleased, although not surprised" the appeals court affirmed the circuit court's decision.
"Park Bank has maintained from the beginning of this case that Koss' claim that Park Bank was somehow responsible for the embezzlement was ludicrous," Laing said.
The appeals court found Koss had to demonstrate the circumstances were suspicious enough to put the bank on notice of improper conduct and that the bank deliberately failed to investigate because it was concerned of what it might find.
Koss argued that a Park Bank employee had described Sachdeva’s transactions as “strange,” the bank had issued cashier’s checks based on verbal requests from a Koss employee, Sachdeva’s assistant, who was not an account signatory and then gave the checks to Koss employees without requiring identification. The company also pointed to Sachdeva’s testimony that she chose Park Bank as the source of cashier’s checks because it “made it easy for her to do so.”
Park Bank countered that during the last five years of Sachdeva’s scheme, during which she was issued 359 cashier’s checks, the bank issued more than 60,000 such checks and made 40,000 wire transfers during a period when Sachdeva made seven. The bank also said it provided Koss monthly statements detailing all the company’s transactions.
The appeals court agreed with Borowski’s finding that Sachdeva was authorized “to enact every transaction that was part of the embezzlement. Those transactions in fact breached her fiduciary duties to Koss, but she was authorized to enact them nonetheless. Park Bank’s procedures themselves did not enable Sachdeva’s embezzlement.”
“None of the pieces of evidence cited by Koss, whether considered individually or cumulatively, raise a genuine issue of material fact as to whether Park Bank acted in bad faith with respect to Sachdeva’s embezzlement,” Stark’s appeals court opinion says. “Koss also fails to cite any evidence indicating that Park Bank deliberately declined to investigate Sachdeva’s transactions due to a fear that further inquiry would disclose defects in them. On this record, the circuit court properly granted Park Bank’s summary judgment motion.”