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January 25, 2004
The United States Attorney's Office for the Northern District of California today unsealed the guilty plea of the former General Counsel of U.S. Wireless, Inc., a San Ramon, California-based wireless systems designer. In addition, new charges were announced against U.S. Wireless's former Chief Executive Officer.
The guilty plea of U.S. Wireless's former General Counsel, David Scott Klarman, was unsealed this morning in San Francisco federal court. Mr. Klarman pled guilty on December 2, 2003, to one count each of mail fraud and money laundering, arising out of a scheme with the former Chief Executive Officer, Oliver Hilsenrath, to embezzle stock from U.S. Wireless. According to Mr. Klarman's plea agreement, in which he agreed to cooperate with the United States, he and Mr. Hilsenrath "intended and agreed to use [several British Virgin Island shell] corporations to receive stock options and shares that we planned to misappropriate from our employer. . . ." Mr. Klarman stated that he and Mr. Hilsenrath were responsible for embezzling more than 500,000 shares of U.S. Wireless stock. Mr. Klarman conceded that he laundered more than $9 million in proceeds from the fraud scheme, all of which is subject to forfeiture.
The date for Mr. Klarman's sentencing, before U.S. District Judge William H. Alsup, has not yet been set. The maximum statutory penalty for mail fraud is five years in prison, a $250,000 fine, and three years of supervised release. The maximum statutory penalty for money laundering is 20 years in prison, a $500,000 fine, and three years of supervised release. At the time of sentencing, the Court will also determine the amount of restitution and forfeiture. Mr. Klarman has agreed to place at least $5 million in an escrow account pending this determination. The United States has already seized approximately $214,000 in proceeds from the fraud scheme.
A federal grand jury has also returned a superseding indictment against Mr. Hilsenrath charging that, from 1996 through 2001, he defrauded and conspired to defraud U.S. Wireless shareholders by improperly transferring company stock and cash to offshore shell corporations under his and co-conspirators' control. The indictment was returned on January 15, 2004. It alleges that, in furtherance of the conspiracy and to conceal the misappropriation of the Company's stock and money, Mr. Hilsenrath caused U.S. Wireless to make materially false and misleading statements in its 1998, 1999, and 2000 annual financial reports to the Securities and Exchange Commission.
After the fraud was discovered in March 2001, U.S. Wireless requested the resignations of Mr. Klarman and Mr. Hilsenrath and restated its financial results, increasing its fiscal year 2000 loss by more than 55 percent. After the company publicly disclosed the fraud, NASDAQ discontinued trading on the stock. Within months of discovering and announcing the fraud, the Company filed Chapter 11 Bankruptcy and sold off its assets.
The superseding indictment charges Mr. Hilsenrath with one count of conspiracy to commit securities, mail, and wire fraud in violation of 18 U.S.C. § 371, five counts of mail fraud in violation of 18 U.S.C.§ 1341, and two counts of wire fraud in violation of 18 U.S.C. § 1343, each of which carries a maximum penalty of five years imprisonment and a $250,000 fine. Mr. Hilsenrath was also indicted on three counts of securities fraud in violation of 15 U.S.C. § 78ff, which carries a maximum penalty of 10 years imprisonment and a $1 million fine. In addition, the United States is seeking criminal forfeiture of all property constituting and derived from proceeds traceable to the mail and wire fraud offenses.
Any criminal sentence following conviction would be dictated by the Federal Sentencing Guidelines, which take into account a number of factors, and would be imposed in the discretion of the Court. An indictment simply contains allegations against an individual and, as with all defendants, Mr. Hilsenrath must be presumed innocent unless and until convicted.
The Justice Department will seek to extradite Mr. Hilsenrath, who is a fugitive currently residing in Israel. Upon his return to the United States, the case will proceed before U.S. District Judge William H. Alsup in San Francisco.
United States Attorney Kevin V. Ryan, a member of the President's Corporate Fraud Task Force, said: "This office continues to devote all resources necessary to the criminal prosecution of corporate wrongdoing and securities fraud. Mr. Klarman's guilty plea represents one of the first convictions of a public company's general counsel for corporate fraud. This prosecution also illustrates that when a criminal defendant chooses to leave the United States, we will act to secure his return to this country to face the charges."
Mark J. Mershon, Special Agent in Charge of the FBI's San Francisco Field Office said: "The guilty plea and superseding indictment announced today demonstrate the resolve of the FBI to expose corporate fraud in the boardroom. The FBI will bring individuals to justice no matter where they attempt to flee."
This prosecution is the result of an investigation by the FBI and U.S. Attorney's Office, with assistance from the Securities and Exchange Commission. Hartley M.K. West and Anne-Christine Massullo are the Assistant U.S. Attorneys prosecuting the case.
A copy of this press release may be found on the U.S. Attorney's Office's website at www.usdoj.gov/usao/can. Related court documents and information may be found on the District Court website at or on the District Court website at www.cand.uscourts.gov or on http://pacer.cand.uscourts/gov.
All press inquiries to the U.S. Attorney's Office should be directed to Assistant U.S. Attorney Matthew J. Jacobs at (415) 436-7181.
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