Four charged with scheme to defraud Cisco of networking equipment

Charles Levi Lytle pleaded guilty yesterday to mail fraud, wire fraud, conspiracy to commit mail fraud and wire fraud, and conspiracy to commit money laundering, by perpetrating a scheme to defraud Cisco Systems of over $400,000 of computer networking equipment.

According to the plea agreement, Lytle schemed to defraud Cisco Systems under the SMARTnet service contract program, wherein Cisco agreed to provide customers with technical support, including advance hardware replacement. Advance hardware replacement allowed customers to obtain replacement equipment from Cisco immediately, without having first to return the broken part.

Lytle, a Minnesota resident, worked as a Sales Representative for Interlink Communications Corporation, a company based in Edina, Minnesota, that bought and sold new and used Cisco networking equipment.

According to the plea agreement, from January 2001 to August 2002, Lytle and others at Interlink Communications conspired to submit fraudulent SMARTnet service contract claims to Cisco to receive “replacement” computer networking parts to which they were not entitled. The defendants and others then sold these “replacement” parts to customers and deposited the payments from those customers in Interlink’s bank account. Lytle and others disguised their fraudulent acquisition and sale of the “replacement” parts by altering their internal purchase, sale, and inventory accounting system to make it appear as if the “replacement” parts had been legitimately acquired.

Lytle remains out of custody pending sentencing, scheduled for April 9, 2008. The maximum statutory penalties for the mail fraud and wire fraud conspiracy and all but one mail fraud and one wire fraud charge are 5 years in prison and a $250,000 fine (or twice the gain or loss resulting from the fraud). Because one mail fraud violation and one wire fraud violation occurred after the effective date of the Sarbanes-Oxley Act, the maximum statutory penalties for those two violations are 20 years in prison and a $250,000 fine (or twice the gain or loss resulting from the fraud). The maximum penalties for the money laundering conspiracy are 10 years in prison and a $250,000 fine (or twice the amount of the criminally derived property involved in the transaction).