Kit Digital Inc was a short-lived online video management company that went bankrupt in 2013. That bankruptcy followed the announcement that then CFO Robin Smyth and CEO Kaleil Isaza Tuzman had deceived investors about the profitability of the company. From 2010 to 2012 they “significantly overstated” how successful Kit Digital was, through the improper recognition of revenue earned through “perpetual license” software and fraudulent round-trips.
Six months ago, United States prosecutors charged the two with fraud. Smyth was extradited from Australia in November, and has been held without bail since then. He has since pleaded guilty to five counts, which includes securities fraud, and has agreed to cooperate in the case against Tuzman.
Tuzman and Smyth stepped down in 2012, after which Kit Digital announced they would restate their income starting with 2009. With that announcement came a drop in their stock prices and they were delisted by Nasdaq, and they filed for bankruptcy in April of 2013.
While Smyth claims that he knew what he was doing was wrong and that he is “truly remorseful” for his crimes, it does kind of beg the question of why he did so in the first place. Presumably, the company was under pressure to perform, and it is unclear whether or not their actions were a result of desperation or of a desire to commit fraud in the first place. The former seems more likely, as if they had set out to con investors, they didn’t do a particularly good job of following through with it.
But what they did was wrong, and it’s good that at least Smyth has been brought to justice. Their actions harmed their investors, and their former employees have probably suffered as well. Hopefully, this will drive home the whole “crime doesn’t pay” moral to others who might be thinking about cooking the books in order to stay afloat.