Large, mature publicly traded companies should have the best internal control structures. Even more so when they are regularly the most valuable company in the world based on market cap. If a company that large and sophisticated can be the victim of fraud, any company is at risk.
Today we look at Apple and a case from 2022. For most of his time at Apple from 2008 to 2018, Dhirendra Prasad was a buyer in Apple’s global service supply chain, purchasing parts and services from vendors. Specifically, Prasad’s purchasing responsibilities were related to buying parts and supplies for warranty repairs. Having been part of a Fortune 500 purchasing organization, I can tell you that this is typically a role with a lot of discretion.
Prasad started misusing his position as early as 2011. He took kickbacks, inflated invoices, stole parts, and fraudulently charged Apple for parts never delivered. In short, he didn’t hold back. Prasad also worked with a couple of co-conspirators, Robert Gary Hanson and Don M. Baker, each of whom ran vendor companies used by Apple. There are some really interesting bits in this case. First, we have the fraud scheme examples:
In 2013 Prasad had motherboards shipped from Apple’s inventory to Baker’s company CTrends. CTrends then harvested components off the motherboards and sold those components back to Apple with Prasad’s help. Apple bought its own components back from CTrends and Prasad and Baker split the proceeds.
In 2016 Prasad arranged to have components shipped from an Apple warehouse in Nevada to Hanson’s company, Quality Electronics Distributors. Hansen removed the components from their packaging, placed them in new packaging, and shipped them back to Apple. Prasad executed purchase orders for those components and caused Apple to pay the related invoices. In essence, Apple bought its own stolen components back.
These are just a couple of examples. To hide his payments, Prasad set up a shell company to issue invoices to CTrends. CTrends would then remit Prasad’s share of fraudulently obtained cash.
The second interesting piece here is that the IRS got involved. I’m surprised this isn’t seen more often. As a result of his shell company, Prasad claimed hundreds of thousands of dollars in tax deductions and now the IRS wants their money.
Prasad pled guilty to theft of $17 million from Apple. He is required to pay back $17+ million to Apple and $1.8 million to the IRS. As a result, Prasad has also agreed to forfeit $5.4 million in assets and owes $8 million in additional cash restitution. Prasad was sentenced to 3 years in prison and 3 years of supervised release.
As with many of these cases, Prasad was technically convicted of conspiracy to commit mail fraud and wire fraud, but he got the extra bonus of pleading guilty to one count of conspiracy to defraud the United States. This is the tax charge.
None of the many articles I reviewed describe how Prasad was caught, but the press release from the government notes that the prosecution was the result of an investigation led by the Internal Revenue Service. It is possible that the IRS caught on before Apple did.