Federal prosecutors want to lock up MOD Systems founder Mark Phillips for more than eight years after the high-tech executive looted the maker of digital kiosk technology, lied to investors and “undermined the fabric of the entrepreneurial community.”

Phillips, who was convicted on four counts of wire fraud, one count of mail fraud, and two counts of money laundering earlier this year, is scheduled to be sentenced in federal court Friday. And the sentencing comes amid word that MOD itself has closed down operations for good.

“Without regard for his responsibilities as a director and officer, in willful contempt and disregard of the oft-repeated advice of more experienced colleagues, mentors, and lawyers, and in total self-aggrandizement,Phillips stole from MOD to satisfy his personal appetite for luxuries,” federal prosecutors wrote in a sentencing memorandum released last week.

“A significant sentence is appropriate in this case because it will send a clear signal to the community that this type of fraud, looting, and embezzlement by corporate officers and directors trusted to build companies, not destroy them, is not tolerated,” the prosecutors wrote.

The memorandum details Phillips activities as CEO of the company, including funneling corporate funds to his lawyer’s trust account and his girlfriend as well as drug dealing. The funds were used to purchase watches, make an escrow payment on a condominium and make a personal investment in a startup company which eventually went belly up. Prosecutors wrote:

Over the course of his time at MOD, Phillips repeatedly treated MOD’s money as his own, stealing from the Company and defrauding its investors. For example, Phillips abused MOD’s lack of credit and its dependence on his American Express account by claiming that personal expenditures were made for business purposes, and inducing MOD to pay for those expenses. Among other things, Phillips admitted that he spent approximately $13,159 on clothing and apparel purchases at Hermes and Louis Vuitton, $8,000 on Salvador Dali lithographs, $9,469 in furniture and other expenditures at Tokyu Department store, $6,150 in dental and DNA testing expenses, and $28,600 in charitable contributions, all on MOD’s credit card, and all for his personal benefit.

Meanwhile, MOD Systems — which prior to Phillips’ transgressions raised $35 million from NCR and Toshiba — has finally tossed in the towel. Sources tell GeekWire that the company is no longer operating and attempts to reach CEO Anthony Bay over the past few weeks have been unsuccessful.

In fact, the sentencing memorandum indicates that the company ceased operations earlier this month.

“Although the magnitude of Phillips’s fraud was not the sole cause of MOD’s demise, Phillips’s need to indulge his materialistic needs by fraud, rather than focus on building a business, ultimately doomed MOD,” the prosecutors wrote. “That is, had Phillips done what he was supposed to do – develop an innovative product – rather than look for ways to embezzle money out of MOD, MOD might still be in business today, and the thirty-five or forty employees who dedicated the last several years of their life to MOD would still be gainfully employed, rather than looking for work.”

You can reach the full sentencing memorandum here.

UPDATE: MOD Systems founder Mark Phillips sentenced to four years in prison

Previously on GeekWire:

“Struggling MOD Systems places employees on leave”

“Seattle Art Museum sues MOD over unpaid rent”

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  • Joe the coder

    “undermined the fabric of the entrepreneurial community” – uh, that’s so ridiculous. 

    Yeah, Mark was a thief and a liar but let’s not make him out to be a super villain.  And, I doubt he could have made MOD successful.  He’s always played fast and loose with the truth – vastly overstating his skills and accomplishments – but the real problem for MOD was that they were focused on an area that had failed to develop and that technology had passed by.

  • Janis Machala

    Four years as a sentence for the loss of a company, defrauding investors, and violating the trust of all those employees who worked tirelessly to make this company viable seems like a slap on the wrist versus a major judgment. My heart goes out to Anthony Bay (who is a good guy and doesn’t deserve this outcome) and all the employees who now see funds spent for a lavish lifestyle and a mockery of the angels and corporate funders backing this company.

    • Insightful is thoughtful

      Your heart goes out to Anthony Bay? I call shenanegans on that crock. Whatever Mark Phillips took from that 35 million of Toshiba’s investment was, in fact, returned to MOD. MOD+Anthony Bay did not pay licensing fees owed to Phillips nor did they pay his salary. Amongst other things, that 35 was spent on Anthony Bay’s limos and body guards. MOD also went on a hiring splurge after Mark was incarcerated. People with no credentials were getting bonus packages that screamed FRAUDULENT. Oh- but since Bay was the one calling the shots – and putting focus on the dramas surrounding Mark’s Federal Investigation, who cared?  Of all people among the highly responsible for the demise of the company- Mark is the only on who is being held responsible. What about the transexual lawyer Kylene Caine? or the Old woman Jan Wallace? What of them?
      Mark was definitely caught up in his own reality but he put everything he had in the company . It was his life’s blood.  If people like Anthony Bay and his buddies weren’t such greedy whores, then MOD might have been able to accomplish something. Perhaps they could have kept pace with the progression of technology. Perhaps they could have created something better than they were originally aiming for. We’ll never know.

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