Two top executives at Quadrant 4 Systems of Schaumburg, Ill., providers of the QHIX private health exchange, were arrested November 30 on federal charges of wire fraud and certifying false documents with the U.S. Securities and Exchange Commission.

According to the criminal complaint, Quadrant 4 Systems CEO Nandu Thondavadi and CFO Dhru Desai, the company’s largest individual shareholders, allegedly concealed the liabilities of the company, artificially inflated the share price of the company’s stock, and persuaded investors through their actions that the profitability of the company was on the upswing. Thondavadi was additionally charged with making false statements to the SEC.

[Image credit: Bloomberg]
[Image credit: Bloomberg]

NsBoth men were charged by complaint and waived their rights to a preliminary hearing. They did not enter pleas and were released on $800,000 property-secured bonds.

Quadrant 4 Systems (Q4) did not respond to several requests for comment.

Attorney Mark Rotert of Chicago, who is representing Thondavadi and Desai, would not comment — saying that he had just recently taken the case — other than to say that both men have stepped away from the business while they focus on their defense.

According to the complaint, the investigation began in the spring of 2016, when SEC authorities noticed red flags in Q4’s annual filings, and began to suspect that its financial condition had been misreported. In October, the agency turned over to the FBI its findings, which included allegations that Thondavadi filed “fraudulent and forged documents” with Q4’s auditor around the company’s 2013 purchases of Teledata Technology Solutions and of Momentum Mobile.

During the SEC investigation, Thondavadi allegedly made materially false statements to agents about his involvement in a company called Core Information Technology Solutions (CITS), telling SEC investigators that CITS was one of Q4’s largest customers and a company in which he had no control, interest, or access to its finances. The complaint alleges that in 2014 Thondavadi signed written agreements as the CTIS president and CEO, was an account holder for the business, and in 2015 informed staff that Q4 had fully merged with the company.

Thondavadi and Desai are also said to have concealed from auditors and shareholders the financial impact of a $1.75-million breach-of-contract lawsuit they lost to Downtown Capital Partners, LLC, of New York.

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