Cybersecurity Executives Ran $37 Million Fraud Scheme, SEC Says

The headquarters building of the U.S. Securities and Exchange Commission (SEC) stands in Washington, D.C., U.S., on Monday, May 10, 2010. The chief executive officers of the biggest U.S. stock markets were called to a meeting at the SEC today to discuss last weeks selloff in equities, according to four people familiar with the situation. Photographer: Bloomberg/Bloomberg , Photographer: Bloomberg/Bloomberg

Chris Dolmetsch, Bloomberg News

Oct 20, 2021

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(Bloomberg) -- The top executives of defunct cybersecurity company GigaMedia Access Corp. faked its financial statements and had an employee pretend to be customer to raise more than $37 million from investors, the Securities and Exchange Commission said.

The regulator on Wednesday sued Robert Bernardi, the founder and former chief executive officer of GigaMedia, which also did business as GigaTrust, and Nihat Cardak, the company’s former chief financial officer, for securities fraud in federal court in New York. Sunil Chandra, the company’s vice president for international business development, was accused of aiding and abetting the fraud.

The three men couldn’t immediately be reached for comment, and lawyers for them couldn’t immediately be identified.

According to the SEC, Bernardi told one investor, a private fund focused on secondary offerings in the technology sector, that the company had as much as $16.6 million in cash as of December 31, 2017, counted 400 companies of the Fortune 2000 among its active customers and had more than $55 million in revenue in 2017. 

The fund coordinated investments in the company totaling $8.3 million based on those representations, according to the SEC. In reality though, GigaMedia only had $70,000 in cash at the end of 2017, fewer than 50 customers, and $1.5 million in 2017 revenue, the regulator said.

Impersonated Customer

“Bernardi and Cardak’s deceit regarding Giga’s customer base, revenues and balance sheet was material” to the decision to invest, the commission said in its suit. “Giga’s cash on the balance sheet was important” to the investor “because it meant that the company was not at risk of a liquidation event that could imperil the private fund’s equity investment.”

At one point, Chandra allegedly impersonated a GigaMedia customer in order to help Bernardi and Cardak convince a new lender to take on its outstanding debt.

Bernardi, who founded Herndon, Virginia-based GigaMedia in 2000, was ousted in 2019 along with Cardak after the company breached a loan agreement with one of its investors. That investor then took control of the company and hired a third-party forensic accounting firm to conduct a restructuring. GigaMedia subsequently filed for bankruptcy.

The case is Securities and Exchange Commission v Bernardi, 21 cv 8598, U.S. District Court, Southern District of New York.

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