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U.S. Attorneys » Northern District of California » News
Two Former Silicon Valley Executives Charged With Defrauding Tech Company Through Kickback Scheme
Defendants Steered Their Company's Work To Outside Software Company, Then Laundered Nearly $17 Million In Kickbacks Through A Shell Company
SAN JOSE – Kevin Chao and Richard Sze, who worked together as executives at a prominent Silicon Valley technology company, were arrested and each charged today in separate federal criminal complaints with conspiracy to commit honest services wire fraud and money laundering based on a kickback scheme that defrauded their technology company, announced Acting United States Attorney Stephanie M. Hinds and Federal Bureau of Investigation Special Agent in Charge Craig D. Fair. Chao was additionally charged with substantive wire fraud and honest services wire fraud in the complaint against him.
According to the federal complaint unsealed today, Chao, 62, of Mountain View, and Sze, 54, of Saratoga, began working for "Company-1" in 2005 after Company-1 acquired the business where Chao and Sze were employed. Company-1 is considered a global leader in industrial automation and digital transformation and provides hardware and software productions, solutions, and services to its clients. Company-1's common stock is traded on the New York Stock Exchange.
Chao rose to the position of Global Business Director of Company-1. Sze became a Manager of Software Engineering. Sze reported directly to Chao.
The criminal complaints for each defendant allege that in 2012, Company-1 switched from its established software development vendor to a new company. The new software development company had been incorporated in China at about that time and was 80% owned by an individual who worked at the previous software development vendor for Company-1. That individual seemed to know Chao, according to a former supervisor of Chao.
The complaints describe that beginning in 2016 or earlier and continuing through 2020, Chao and Sze orchestrated a kickback scheme with the new software development company. In the scheme, Chao and Sze steered software development work from Company-1 to the new software development company. Inflated or false invoices were submitted to Company-1 for the software development work. Chao and Sze authorized or otherwise caused Company-1 to pay the invoices. The paid funds were then funneled to Chao and Sze through a California limited liability company named Mooteec. Mooteec was entirely controlled by Chao and Sze. According to the complaint's affidavit, Mooteec produces no product or service, has a P.O. box as its mailing address, has no physical office, and appears to be a shell corporation designed to conceal and move kickback money. Money that moved through Mooteec passed to Chao, Sze, and Chao-related bank accounts.
Company-1 paid the new software company more than $30 million, which was deposited into the software company's bank account, according to the complaint. From 2016 until early 2020, the complaint describes that nearly $17 million was deposited from the new software company's bank account into a Mooteec account. Withdrawals from the Mooteec account reflect that more than $5.4 million was sent to Chao's accounts and over $1.3 million went to Sze's accounts.
In late 2019, an employee who was resigning from Company-1's employment reported that "something funny" was happening between Chao and the new software development company. The complaint describes that the report led Company-1 to begin an internal investigation. In December 2019, Chao and Sze resigned on the same day from Company-1.
Chao and Sze are scheduled to make their initial appearance in San Jose federal magistrate court to face the charges in their respective criminal complaints on October 29, 2021, at 1 p.m.
Chao is charged in his complaint with wire fraud, honest services wire fraud, and conspiracy to commit wire fraud in violation of 18 U.S.C. §§ 1343, 1346, and 1349, and money laundering in violation of 18 U.S.C. § 1956. Sze is charged with conspiracy to commit honest services wire fraud in violation of 18 U.S.C. § 1349 and money laundering in violation of 18 U.S.C. § 1956. If convicted of wire fraud, honest services wire fraud, or conspiracy to commit wire fraud, the maximum sentence for each count is 20 years in prison and a fine of $250,000 or twice the gross gain or gross loss. If convicted of money laundering, each defendant faces a maximum sentence of 20 years in prison and a fine of $500,000 or twice the value of the property involved. Any sentence following conviction, however, would be imposed by the court only after consideration of the U.S. Sentencing Guidelines and the federal statute governing the imposition of a sentence, 18 U.S.C. § 3553.
A complaint merely alleges that crimes have been committed, and all defendants are presumed innocent until proven guilty beyond a reasonable doubt.
The case is being prosecuted by the Corporate and Securities Fraud Section of the U.S. Attorney's Office for the Northern District of California and forfeiture is being handled by the Office's Asset Forfeiture Unit. The prosecution is the result of an investigation by the FBI.
USAO - California, Northern