The former chief financial officer of bankrupt email security business GigaTrust faces up to five years in prison after pleading guilty to defrauding investors and lenders of $50 million by impersonating auditors and fabricating reports, the Department of Justice (DOJ) announced Thursday.
Nihat Cardak, together with GigaTrust founder and former chief executive officer Robert Bernardi and former vice president for business development Sunil Chandra, tricked investors and lenders into pouring millions into GigaTrust from 2016 through at least 2019, when the privately held company was financially floundering, according to their indictment, filed in U.S. District Court for the District of Southern New York in October 2021.
The three went to great lengths to try and fool investors and lenders into believing the company was financially strong, including fabricating bank account statements that inflated GigaTrust’s cash deposits, crafting fraudulent audit materials that overstated GigaTrust’s financial performance, and forging a letter that appeared to be written by GigaTrust’s New York counsel, the DOJ said.
On May 10, 2019, GigaTrust received a notice of default from a New York bank and needed to wire the bank $10 million within days. Bernardi and Cardak began negotiating with a different lender for another $25 million.
When they learned diligence calls were part of the requirement for the loan, they had Chandra pretend to be a GigaTrust customer on the call, according to the indictment.
When the subject of the default came up, Bernardi and Cardak forged a letter pretending to be from a GigaTrust counsel, which falsely stated the company hadn’t defaulted on the bank loan. They then fabricated bank statements and sent them to the lender, “right before closing the $25 million deal,” the DOJ said.
Bernardi and Cardak falsely told potential investors the company had about $43 million in cash as of July 31, 2019, when it actually had just $5 million, according to a Securities and Exchange Commission complaint against the three GigaTrust executives alleging securities fraud.
GigaTrust filed for Chapter 7 bankruptcy protection in November 2019, and that’s when “their scheme came crashing down,” U.S. Attorney Damian Williams said in the press release.
Cardak, Bernardi, and Chandra “chose to lie and mislead investors and lenders in order to keep GigaTrust afloat instead of owning up to the company’s financial reality,” Williams said.
Cardak pleaded guilty to one count of conspiracy to commit securities fraud. His sentencing is scheduled for May 16.
Bernardi pleaded guilty in August 2022 to conspiracy to commit securities fraud, bank fraud, and wire fraud. Chandra was charged with one count of conspiring to commit wire fraud.