Kit Digital Inc.’s former chief financial officer, Robyn Smyth, pleaded guilty to fraud, telling a judge that he and the company’s former CEO misled investors and regulators about the technology startup’s financial health by overstating assets, understating losses and recognizing sometimes nonexistent revenue.
Kaliel Isaza Tuzman, the ex-chief executive officer and a former dot-com star, has been held in a high-security Colombian prison on U.S. accounting-fraud charges since his arrest in September at the behest of the U.S.
Tuzman is also charged with conspiring with an unnamed hedge fund operator from December 2008 to September 2011 to inflate Kit Digital’s trading volume and share price by so-called match trades that allowed it to conceal purchases of its own stock.
The Observer has previously reported that the unindicted hedge fund manager fits the description of Stephen Maiden, who was sentenced last year by a federal judge in Charlotte to seven years in prison for an investment scheme that cost investors at least $8.9 million.
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A 2014 civil suit filed by investors against Maiden and hedge fund administrator SS&C Technologies alleged that Maiden had ties to Tuzman, saying they started doing business together in 2008. That suit, now in N.C. Business Court, says Maiden’s involvement with Tuzman and two other individuals led to the demise of his fund.
Gary Mauney, the Charlotte attorney representing the investors in the civil suit, has said the context in the indictment indicates Maiden is the hedge fund manager listed as “co-conspirator #1.”
While a federal judge in the case called the conditions of Tuzman’s detention “appalling,” he also rejected Tuzman’s request to be returned to the U.S. and avoid the extradition process pending in Colombian courts.
Smyth, 62, an Australian who was extradited to the U.S. in November, pleaded guilty in Manhattan federal court Tuesday to conspiracy to commit securities fraud, securities fraud and three counts of making false statements to the Securities and Exchange Commission.
He told U.S. Magistrate Judge Henry Pitman that he conspired with Tuzman and others at the mobile-video company to dupe investors, regulators and analysts to recognize revenue for products which he said were sometimes “illusory.” Kit Digital filed for bankruptcy in 2013 and is now known as Piksel Inc.
“I know my behavior was wrong when I committed it, and I’m truly remorseful for the harm I’ve committed,” Smyth said.
Pitman warned Smyth he might face a prison term as long as 85 years after pleading guilty to all the charges. His plea agreement says prosecutors will seek a lesser sentence in exchange for his cooperation with the government.
Staff writer Rick Rothacker contributed