Ex-Kit Digital CFO Pleads Guilty to Fraud, Faces Prison Time

  • Smyth admits lying to investors and SEC about revenue, losses
  • Kit Digital's ex-CEO Tuzman awaits extradition from Colombia

Kit Digital Inc.’s former chief financial officer, Robyn Smyth, pleaded guilty to fraud, telling a judge that he and the company’s former CEO misled investors and regulators about the technology startup’s financial health by overstating assets, understating losses and recognizing sometimes nonexistent revenue.

Kaliel Isaza Tuzman, the ex-chief executive officer and a former dot-com star, has been held in a high-security Colombian prison on U.S. accounting-fraud charges since his arrest in September at the behest of the U.S.

While a federal judge in the case called the conditions of Tuzman’s detention “appalling,” he also rejected Tuzman’s request to be returned to the U.S. and avoid the extradition process pending in Colombian courts.

Smyth, 62, an Australian who was extradited to the U.S. in November, pleaded guilty in Manhattan federal court Tuesday to conspiracy to commit securities fraud, securities fraud and three counts of making false statements to the Securities and Exchange Commission. He promised to cooperate with prosecutors.

He told U.S. Magistrate Judge Henry Pitman that he conspired with Tuzman and others at the mobile-video company to dupe investors, regulators and analysts to recognize revenue for products which he said were sometimes “illusory.” Kit Digital filed for bankruptcy in 2013 and is now known as Piksel Inc.

‘Truly Remorseful’

“I know my behavior was wrong when I committed it, and I’m truly remorseful for the harm I’ve committed,” Smyth said.

Pitman warned Smyth he might face a prison term as long as 85 years after pleading guilty to all the charges. His plea agreement says prosecutors will seek a lesser sentence in exchange for his cooperation with the government. The U.S. won’t prosecute Smyth for tax violations, the government said. He remains in federal custody.

Tuzman is also charged with conspiring with an unnamed hedge fund operator from December 2008 to September 2011 to inflate Kit Digital’s trading volume and share price by so-called match trades that allowed it to conceal purchases of its own stock.

Smyth’s lawyer, Michael Bachner, declined to comment after court. Avi Weitzman, a lawyer for Tuzman, didn’t immediately reply to a voice-mail message left at his office seeking comment about Smyth’s plea.

The case is U.S. v. Tuzman, 15-cr-00536, U.S. District Court, Southern District of New York (Manhattan).

Related Ticker:
KITDQ US (Kit Digital Inc.)

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