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.