Ex-Kit Digital CFO pleads guilty in U.S. to securities fraud

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The former chief financial officer of Kit Digital Inc pleaded guilty on Tuesday to engaging in a scheme to deceive investors about the now-bankrupt online video management company’s financial health.

Robin Smyth, 62, pleaded guilty in federal court in Manhattan to five counts including securities fraud, six months after U.S. prosecutors announced charges against him and the company’s former chief executive, Kaleil Isaza Tuzman.

Smyth, who has been held without bail since being extradited in November from Australia, admitted in court that from 2010 to 2012, he and Tuzman schemed to “significantly overstate” the revenue and performance of Kit Digital.

“I knew that my behavior was wrong when I committed it, and am truly remorseful for the harms I committed,” Smyth said, his voice cracking.

Under a plea agreement, Smyth agreed to cooperate with authorities including in the case against Tuzman, an ex-Goldman Sachs analyst who achieved brief fame as an Internet entrepreneur and whose govWorks.com was the subject of the 2001 documentary Startup.com.

Smyth’s lawyer, Michael Bachner, declined comment.

Prosecutors said from 2010 to 2012, Smyth worked with Tuzman to deceive Kit Digital’s investors and auditors into believing the company was more profitable than in reality.

That scheme involved the improper recognition of revenue for “perpetual license” contracts for software and the execution of fraudulent round-trip transactions, prosecutors said.

After Tuzman and Smyth resigned in 2012, the company, which was based in New York and Prague, that November announced it would restate financial results going back to 2009.

On the first trading day after the announcement, Kit Digital’s shares opened down 52 percent at $1 and fell a further 26 percent to 74 cents by the day’s end, the U.S. Securities and Exchange Commission said in a related civil lawsuit.

Nasdaq subsequently delisted the company, which ultimately filed for bankruptcy in April 2013.

The case is U.S. v. Tuzman, U.S. District Court, Southern District of New York, No. 15-cr-536.

(Reporting by Nate Raymond in New York; Editing by Chris Reese)