Two former technology executives have been arrested and charged in connection with a scheme that allegedly siphoned millions of dollars out of their last firm’s coffers, authorities said.
An investigation by the Federal Bureau of Investigation led to separate complaints unsealed Friday. Kevin Chao, 62, of Mountain View, and Richard Sze, 54, of Saratoga, were arrested Thursday and charged with conspiracy to commit honest services wire fraud and money laundering, with Chao also charged with substantive wire fraud and honest services wire fraud, the U.S. Justice Department said.
The complaints say Chao and Sze worked at a company that was acquired in 2005 by an unnamed New York Stock Exchange-traded company described as “a global leader in industrial automation and digital transformation and provides hardware and software productions, solutions, and services to its clients,” with Chao becoming that company’s global business director and Sze becoming a software engineering manager reporting to Chao.
A LinkedIn profile for Chao described him as a co-founder and vice president for product development for Dataweep from 1998 to 2006, and a global business director for San Jose-based Rockwell Software from January 2007 to January 2020.
The complaints allege that the company changed software development vendors in 2012, choosing a new Chinese-incorporated firm that was 80 percent owned by an ex-employee of the former vendor and that a former Chao supervisor believed the ex-employee “seemed to know Chao,” the Justice Department statement said.
Starting around 2016 until 2020, Chao and Sze allegedly steered work from their company to the new vendor, who sent fake or overpriced invoices. After the company paid invoices totaling more than $30 million, nearly $17 million in funds was transferred to Mooteec, a limited liability corporation controlled by Chao and Sze.
An affidavit in the complaint attests that Mooteec makes no goods, provides no services, has no office and uses a post-office box. But withdrawals from Mooteec’s account show at least $5.4 million and $1.3 million went to accounts respectively controlled by Chao and Sze.
In late 2019, the company launched an internal investigation after an unnamed company employee who was resigning said that “something funny” was going on with Chao and the vendor. That December, both Chao and Sze resigned from the company. Chao’s LinkedIn profile currently lists him as the chief executive officer of an unnamed venture.
For defendants facing charges of wire fraud, honest services wire fraud or conspiracy to commit wire fraud, counts carry a maximum sentence of 20 years in prison and a $250,000 fine, or twice the gross gain or gross loss if convicted. Counts of money laundering carry a maximum sentence of 20 years in prison and a $500,000 fine or twice the value of any involved property.