Cisco VP Gordon Charged In VC Fraud Case

Cisco Systems Inc. vice president Robert Gordon has been charged in federal court with a multi million dollar fraud lawsuit, for allegedly setting up offshore bank accounts, stealing company stock and going so far as to create a bogus venture firm to divert money from the world’s leading maker of Internet equipment.

Gordon, fired by Cisco earlier this month when the allegations surfaced, was released from custody after posting a $5 million cash bond and his $1.6 million Palo Alto, Calif. house as collateral.

Ironically, $5 million happens to be the cash amount Gordon is suspected of originally embezzling, although Assistant U.S. Attorney Joseph Sullivan said Gordon legitimately made a whopping $34 million over the past five years from working at Cisco.

The complaint, filed in San Jose, Calif., alleges that Gordon transferred a little more than 30,000 shares of stock from a Cisco-acquired company named Internet Security Services Group into a Bahamas-based bank account he created under the name Cisco Systems, which had no connection with San Jose’s Cisco.

According to FBI Special Agent Andrew Black, Gordon then sold the stock for more than $5 million, which he allegedly used to fund another venture capital scheme involving a Cisco start-up portfolio company named Spanlink Communications.

Spanlink had been looking for capital and stumbled upon Gordon, who agreed to provide $5 million through a phony front named Bay Star Capital, which has no affiliation with the legitimate San Francisco-based Bay Star Capital. Spanlink, unaware that Gordon was acting on his own, eventually paid out $10 million to Gordon in exchange for his original investment, according to the affidavit.

The Beginning Of The End

Everything began unraveling for Gordon at the beginning of the month, when security officials at Cisco discovered the missing shares of the ISSG stock. According to the affidavit, a security manager asked Gordon about the shares, at which point he admitted to moving the stock while denying any impropriety. Gordon told the manager he was trying to find ways to have cash quickly available for Cisco’s start-up portfolio companies.

According to the affidavit, Gordon then sent a letter explaining to Cisco CEO John Chambers, saying that the stock transfer and Spanlink investment were part of an effort to help allow easy access to funds in case a Cisco start-up needed a quick infusion of capital. Soon thereafter Cisco officials gave Gordon his walking papers and told him to turn in his laptop, even though at least 20% of the hard drive on Gordon’s laptop was allegedly wiped out.

Cisco then turned Gordon in to authorities. A spokesman for Cisco said, “We are assisting their investigation and support their prosecution efforts.”

In The Can

If found guilty, Gordon faces a $250,000 fine and five years in prison for each of the two counts of fraud in interstate commerce, according to Sullivan. However, the maximum sentence seems unlikely.

According to white-collar criminal lawyer Richard Leff, if Gordon was working alone, which it appears he was, and enters into a plea agreement with the government – fairly common in these types of crimes – Gordon may not do any jail time. The New York-based attorney added that while there is a lot of money at stake, there were no weapons involved, which increases Gordon’s chances of staying out of prison.

Gordon defense attorney Richard Beada declined to comment on whether a plea agreement was in the works,although sources close to the situation said that a plea agreement is a likely possibility.

Beada, who is based in Santa Monica, would only say that the case, not even a week old, is brand new for everyone and he is “working with Cisco and the government to try to resolve everybody’s differences. Any matter like this is serious, and we’re taking it seriously.” Beada is taking it so seriously that he has brought in assistants to help him with the case.

The preliminary hearing is set for sometime next month. If the grand jury indicts Gordon and the case does go to trial, it wouldn’t start for a couple of months, at best.

U.S. Attorney Sullivan said this represents the second time in the past month Cisco employees have been charged with trying to steal from the company. Two Cisco accountants were recently indicted for breaking into the company’s computer system and moving millions of dollars in Cisco stock into their own brokerage accounts. Sullivan is also working on that case.

No one interviewed would comment as to whether civil charges against Gordon were likely.

Contact Danielle Fugazy.