If you stole $4.8 million, how much would you spend playing the freemium mobile phone game, Game of War? For Kevin Lee Co, that answer was $1 million.
From 2008 to 2015, Kevin was the controller for Holt, the northern California dealer for Caterpillar heavy equipment. Kevin managed the accounting department and oversaw the company’s commercial credit accounts. Co abused that authority to conduct hundreds of unauthorized credit card transactions on the company’s account, to manipulate and falsify records regarding the credit account, and to mislead the bank that held the credit account when it made inquiries to Co about suspicious transactions.
This fraud has always been short on details. The focus is always on how the money was spent. For this post, I managed to dig up the plea bargain with more detail.
In short, this was pretty common corporate card fraud on a grand scale. Kevin was responsible for managing Holt’s purchasing card (p-card) program. He would issue cards, review statements, approve invoices, and was also a cardholder. Kevin hid his transactions by coding them inappropriately throughout the ledger.
Holt’s bank, Bank of the West, identified suspicious activity on at least three occasions. Each time the bank called Kevin Co and was reassured that the charges were appropriate.
Like our last fraud, Kevin’s got more sophisticated over time. At first, he simply bought personal items on his p-card and hid the expense. Over time he enlisted a co-conspirator, identified as co-conspirator A, a luxury auto dealer, to use his p-card and the p-cards of two former employees to purchase luxury cars and to buy equipment for the co-conspirator.
A second co-conspirator, who was not an employee, was also given a p-card and permitted to spend almost $50k. I’m speculating here, but it wouldn’t surprise me if this was a card for a love interest. Given the modest amount versus the total, it seems like it could be a “get yourself something nice” arrangement.
Finally, Kevin Lee Co engaged in money laundering. Co-conspirator A would charge the card and then write checks back to Kevin for about half of the money.
This story got wild when it was revealed what the money was spent on. The list includes luxury cars, season tickets to the Sacramento Kings and San Francisco 49ers, plastic surgery, and a golf membership at an exclusive club.
And then there is Game of War. A mobile phone-based, free-to-play game with in-game purchase options. Co reportedly spent $1 million dollars on those in-game options in the Kate Upton-promoted game.
Company credit card fraud is depressingly common. P-cards typically have additional controls and in this case, it appears they were triggered at least 3 times, but when the fraudster is in charge, those controls can only do so much.
I’ve personally seen 3 cases of corporate card fraud after the fact. In each case, it was depressingly similar, a controller who coded the cards and entered transactions into the accounting system. The problem with this type of fraud is that it can run for years. A $200k corporate card fraud is a small one. Getting to a million or two is very doable. Still, almost $5 million over 7 years is a long fraud.
Obviously, segregation of duties would have addressed this, as would an independent reconciliation of card charges, along with better p-card limits and purchase limitations. I also want to make the case that CEO, CFO, and controller jobs are NOT transactional jobs. No one hires a controller for their ability to key payables transactions. They can advise on transactions, help ensure that coding is correct, etc., but not key transactions. They definitely shouldn’t key transactions regularly.
But it didn’t stop there. While out on bail and awaiting sentencing, Co started a company selling generators, solar panels, and windows. During the pandemic, he fraudulently applied for and received Paycheck Protection Program loans from two banks totaling more than $500k. Co was required to disclose on the applications that he had pled guilty to wire fraud and money laundering but conveniently left that out. Co was sentenced to 10 years for the initial fraud. Committing a second fraud while on bail will not help him.