Koss Corp fired its vice president of finance after she allegedly embezzled more than $20 million from the headphones maker for a multi-year shopping spree of expensive clothes, jewelry and other personal items.
The executive, Sujata Sue Sachdeva, who is in her mid-40s, held the position at Koss since 1992.
Koss, which reported first-quarter sales of $10.8 million, also said on Thursday financial statements at least since the end of its 2006 fiscal year should no longer be relied upon.
The Milwaukee, Wisconsin company also said it placed two members of the accounting staff, who served under Sachdeva, on unpaid administrative leave.
Sachdeva allegedly used company funds to pay down her personal credit card bills, which totaled more than $4.5 million between January 1, 2008 and December 19, 2009, according to a criminal complaint filed by the U.S. Attorney's Office in a Wisconsin federal court.
Preliminary estimates indicate that the amount of unauthorized transactions since fiscal year 2006 may exceed $20 million, Koss said. Sachdeva's total compensation for fiscal year 2009 was $173,734, according to a regulatory filing.
Sachdeva racked up bills that often ran into hundreds of thousands of dollars, including spending nearly $1.4 million at Valentina Boutique, a high-end shop in Mequon, Wisconin, the complaint showed.
A reviewer on Yelp, a local search and review provider, says the store's selection of clothes, jewelry and accessories are like exquisite works of art, but not in that weird, unwearable way -- more in that 'I've been dreaming about this dress, necklace, whatever and didn't know it existed!' way.
Oh lord if I had five million dollars I would high tail it over to Valentina and go NUTS, the reviewer, identified as Katie W. of Chicago, wrote in a December 5, 2007 entry.
Sachdeva spent liberally elsewhere as well. Among her other bills were: a $670,000 tab at women's clothing store Au Courant in Milwaukee; $649,000 from Zita Bridal Salon in Whitefish Bay, Wisconsin; and $255,000 in purchases from Karat 22 Jewelers in Houston, Texas.
The alleged fraud was discovered when American Express noticed that a customer's personal card account balances were being paid via several large wire transfers, originating from a Koss bank account.
Amex told the company's chief executive, Michael Koss, who found credit card statements in Sachdeva's name and several large piles of women's clothing, with the price tags still attached, in her office.
Sachdeva acknowledged to the FBI that she had been using her position at Koss to authorize wire transfers to pay her personal credit card bills, and that she falsified the balance in Koss's bank account to hide the fact, according to the complaint.
Sachdeva's next court hearing is set for January 11, her lawyer, Michael Hart, said on Friday.
Hart declined to comment further, saying it would be inappropriate for me to comment at this juncture.
Koss' internal investigation, supervised by an independent committee of the board, is continuing, as are efforts to recover merchandise related to the unauthorized transactions, it said.
(Reporting by Paritosh Bansal, editing by Leslie Gevirtz)