Ex-CFO of email security firm pleads guilty in $50M fraud scheme

Dive Brief:

The former CFO of GigaTrust, a bankrupt email security firm, pled guilty in a Manhattan federal court on Thursday to participating in a $50 million securities fraud scheme.
Nihat Cardak conspired with GigaTrust CEO Robert Bernardi and Sunhil Chandra, the firm’s vice president of business development, to defraud investors and lenders by fabricating bank statements and audit reports, among other illegal practices, according to federal prosecutors. Herndon, Va.-based GigaTrust filed for bankruptcy in 2019.
The defendants “chose to lie and mislead investors and lenders in order to keep GigaTrust afloat instead of owning up to the company’s financial reality,” Damian Williams, U.S. attorney for the Southern District of New York, said Thursday in a Justice Department statement. “Their scheme came crashing down in 2019 as GigaTrust filed for bankruptcy, and Cardak and Bernardi have now accepted responsibility for their criminal actions.”

Dive Insight:

The Securities and Exchange Commission, which has filed a civil enforcement action against the defendants, assisted the DOJ probe, the statement said.

The case comes as the SEC intensifies enforcement against corporate malfeasance. The agency in 2021 issued orders imposing nearly $4.2 billion in penalties — the highest amount ever ordered in a year, according to SEC Enforcement Director Gurbir Grewal.

“If market participants think that getting fined by the SEC is just another expense to be priced into the cost of doing business, then penalties are neither effective punishment nor deterrence,” Grewal said in a Nov. 15 speech. “Market participants must realize that complying with securities laws is cheaper than violating those laws.”

Bernardi and Cardak overstated GigaTrust’s cash deposits and performance to obtain multiple rounds of loans and investments worth millions of dollars, according to prosecutors.

After defaulting on a $25 million loan, Bernardi and Cardak induced additional investments by, among other steps, forging a letter purporting to be from GigaTrust’s New-York based counsel, DOJ said.

While negotiating another $25 million deal, Bernardi recruited Chandra to pose as a GigaTrust customer in a requested “diligence call” with the lender, and he conspired with Cardak to craft false bank statements just before closing the transaction, the department said.

Cardak, 52, of Clifton, Va., faces a maximum sentence of five years in prison. His sentencing is scheduled for May 16.

Cardak’s guilty plea was accepted by U.S. District Judge Paul G. Gardephe. It follows a similar plea by Bernardi last year. Charges are still pending against Chandra.