Koss Corp. has named a new chief financial officer, David D. Smith, 55, who comes
to Koss from Milwaukee-based Milsco Manufacturing, a division of Jason Inc.
Chief Executive Officer Michael Koss has given up the CFO title after the discovery
that the company's former vice president of finance, Sujata Sachdeva, may have made
unauthorized transactions totaling $31 million.
Sachdeva has been charged in federal court with embezzling $4.5 million. An indictment
in the case is expected on Wednesday.
Smith, who holds a master's degree in business administration from the University
of Pittsburgh, is a certified public accountant. He joins Koss as executive vice
president and CFO. He served as vice president-finance and CFO at Milsco, a seating
manufacturer, since 2006. Smith served in the same capacity at Alkar-Rapidpak Inc.,
a subsidiary of Middleby Corp., from 2002 to 2006.
Very few public companies, even among small ones such as Koss, have the same person
holding the CEO and CFO positions, as the Milwaukee headphone manufacturer did from
1991 until Smith's appointment.
Some corporate governance specialists criticized the practice when asked about Koss.
Nell Minow, co-founder of The Corporate Library research firm, called it "a nightmare."
Minow and University of Wisconsin-Madison accounting professor Terry Warfield both
said the jobs together are more than one person can handle.
Paul Lapides, director of the Corporate Governance Center at Kennesaw State University
in Georgia, agreed. He called the joint CEO-CFO "a really bad practice."
Larry Rittenberg, like Warfield an accounting professor at UW-Madison, said it is
highly unusual for public companies have the CEO also function as CFO, but added,
"It would appear to an outsider that Ms. Sachdeva may have been acting as the CFO,
but without the title."
Koss Corp. had referred to Sachdeva as the company's "principal accounting officer"
in some of its filings with the U.S. Securities and Exchange Commission.
Michael Koss, meanwhile, has provided the required certifications for the firm's
financial statements as its "principal executive officer" and its "principal financial
officer."
In a related development, two law firms, Glancy Binkow & Goldberg in Los Angeles
and Federman & Sherwood in Oklahoma City, announced late Friday that they had filed
shareholder lawsuits against Koss Corp. The firms said their lawsuits were filed
in federal court in the Eastern District of Wisconsin, but the filings could not
be confirmed because the court was closed Monday.
The Glancy Binkow suit, which also names Micheal Koss and Sachdeva, says shareholders
were misled between July 12, 2005, and Dec. 21, 2009, because the defendants made
false statements regarding Koss' financial statements. The suit says the company's
financial results were overstated and that shareholders have suffered.
The company has continued to decline to comment since the criminal charges were issued
in December.
