Victims of MCSi Criticize Sentence Given to Ex-Chief Executive

By | October 31, 2011

Oct. 30–DAYTON (Source: By John Nolan and Steve Bennish, Dayton Daily News, Ohio) - Former employees and shareholders of MCSi Inc. say they have lost faith in the court system after ex-chief executive Michael E. Peppel received a seven-day prison sentence for the elaborate fraud he committed.

Peppel’s crimes led to MCSi’s 2003 collapse, which wiped out the jobs or investments of hundreds of victims.

“I think it sends a terrible message. I think it shows that money and power can influence a case,” said Mary Schwarz of Kettering, whose late husband, Albert, served as president and chief executive officer of MCSi prior to Peppel. “He pled guilty to being a crook, and he gets seven days?”

The FBI, Internal Revenue Service, Securities and Exchange Commission and Postal Inspection Service worked together for years to unravel the MCSi financial reporting fraud, prosecutors said.

Peppel, 44, pleaded guilty last year to criminal charges of money laundering, conspiring to commit securities fraud, and knowingly reporting false financial results for the publicly traded computer and audiovisual equipment supplier.

Federal authorities accused him of reporting millions in inflated revenue and earnings — with the help of an English business partner — to prop up MCSi’s stock price at a time when MCSi was failing after years of having grown through acquisitions.

When he was arrested in 2006, federal authorities charged Peppel with overstating revenue by $28 million in the first quarter of 2002, and said he personally collected $6.8 million from a fraudulent sale of 300,000 MCSi stock shares in December 2001.

Peppel had built MCSi, and attracted Wall Street’s attention, by acquiring more than two dozen companies in five years. During that growth spurt, sales of the company formerly known as Miami Computer Supply Corp. went from $43.3 million annually to nearly $830 million.

Peppel admitted in 2010 that he had intentionally filed a false corporate 10-Q financial reporting form for MCSi with the SEC in August 2002. He also admitted having attempted to hide fraud proceeds through a series of transfers of nearly $2.8 million from one personal investment account to another.

MCSi’s falsely positive financial reports enabled the company to mask its struggles and meet requirements to continue drawing on a line of credit from banks, saddling the lenders with millions of dollars in losses, a government witness testified at a hearing in June.

The employees who joined MCSi as a result of its acquisitions were among the approximately 1,300 who lost their jobs, benefits and retirement income as MCSi lapsed into bankruptcy and was liquidated. Shareholders were left holding worthless stock, wiping out millions of dollars in investments.

Before Monday’s hearing, U.S. District Judge Sandra Beckwith had concluded that Peppel’s wrongdoing had caused $18 million of losses. The government contended the losses totaled $298 million. The defense said there was little or no loss because MCSi was failing anyway.

Beckwith concluded in August that a prison term of eight to 10 years would apply to his offenses under federal sentencing guidelines that are not binding.

At Monday’s hearing, Peppel’s lawyer, Ralph Kohnen, argued that Peppel has been publicly humiliated, lost his livelihood and paid a steep price in forfeiture of money and property. Because of that, Kohnen urged the judge to impose probation and home confinement for Peppel or, at most, a short prison sentence.

The government, led by Assistant U.S. Attorney Dwight Keller, argued for imprisonment in the eight- to 10-year range.

Beckwith imposed the seven-day prison term after concluding that a lengthy sentence would serve little purpose.

Beckwith said she had been swayed by 113 letters to her from Peppel supporters, who praised him as a devoted father, a man who had helped others find jobs, and a philanthropist who established scholarships at his alma mater, the University of Notre Dame.

The judge said Peppel did not represent a threat to the public; could support his children and ailing family members and pay down his $5 million fine by holding a job outside of prison. Beckwith also said Peppel was unlikely to repeat his white-collar crimes as a convicted felon now barred from serving as a corporate chief executive.

Beckwith ordered Peppel to serve three years of supervised release, including speaking publicly about his crimes and lessons learned, and must disclose his criminal record to all potential employers.

Peppel agreed last year to surrender bank accounts containing at least $888,535, a $20,000 oil painting, a $9,000 bronze horse sculpture and his former home in Washington Twp., Montgomery County, as part of his 2010 agreement with prosecutors.

At its demise, MCSi vacated a Kettering building, at 4751 Hempstead Station Drive, that the Dayton-Montgomery County Port Authority had built for the company.

MeadWestvaco Corp.’s consumer and office products division relocated to that building in 2006 from downtown Dayton.

Peppel is serving as an adviser to a Florence, Ky., online pharmacy company, Friends are paying for his rented house in the affluent Cincinnati suburb of Indian Hill, the defense said. According to Hamilton County property records, the home has more than 6,400 square feet of living space and a market value of $1.5 million.

Federal prosecutors said they are considering an appeal of Beckwith’s decision in what would be a rare challenge. The U.S. Attorney’s Office has until Nov. 23 to file a notice of intent to appeal. Prosecutors will review the transcript of the sentencing hearing and confer with Justice Department superiors in Washington before deciding, spokesman Fred Alverson said.

The judge, through an aide, said Thursday she would not speak with a reporter about her sentencing decision until the appeals period has expired. Beckwith asked her staff to research whether she could publicly release the pro-Peppel letters written to her, the aide said.

Many don’t like the7-day sentence

People who questioned Beckwith’s decision expressed their opinions in emails to the Dayton Daily News.

“I cannot get over the fact that Judge Beckwith let sympathy letters and tears in the courtroom affect her judgment in this case,” wrote Marta Sullivan, a former human resources director at MCSi. “Mike Peppel is an admitted criminal and should be sentenced to time for his crimes, no matter what his family situation is.”

“I am stunned by the judge’s decision to totally disregard her own sentencing memorandum,” wrote John Ellis, a former MCSi employee. “I believed in our justice system until Monday afternoon — no more.”

Libby Hayes, another former MCSi human resources executive, said she plans to express her concerns in her own letter to the judge.

“Many criminals would have supporters saying they are good fathers, mothers, brothers or whatever,” Hayes wrote. “That doesn’t justify, or negate, the crime.”

Robert Bostick, a former MCSi sales representative in the San Francisco area who described himself as a Peppel supporter, said he was relieved to learn that Peppel didn’t get a long prison term.

“I am happy for Mike but, as far as the message it sends, it is the wrong message, especially with the amount of crime happening on Wall Street in the last 10 years that nearly took the world economy off a cliff,” Bostick wrote.

Criminal sentences are meant to ensure that an offender receives a just and suitable punishment, and that others who would commit similar crimes know that there is a price to be paid, said Ric Simmons, a former prosecutor in the Manhattan district attorney’s office in New York City who is now an Ohio State University law professor.

The justice system also has a goal of attempting to rehabilitate criminals for return to society, so defense lawyers have an interest in creating the impression that defendants are already rehabilitating and can continue doing so, Simmons said. A judge can take into account whether a defendant is being punished in other ways, such as loss of livelihood, and any good acts that he has done, Simmons said.

Still, Peppel’s seven-day prison sentence could give the impression that white-collar crime won’t be firmly punished, Simmons said.

“I can see how people could perceive a double standard, in that these kinds of deviations are unusual,” Simmons said. “If I were the prosecutor, I’d be shocked.”

Peppel’s sentence bucks a trend of increasingly stiffer prison terms for white-collar criminals in recent years as the losses from fraudulent schemes have escalated, said Peter J. Henning, a former federal prosecutor and Securities and Exchange Commission lawyer who is now a Wayne State University law professor in Detroit.

In cases that involved greater financial losses than those attributed to Peppel, New York investment adviser Bernard Madoff was sentenced to 150 years in prison in 2009 for a multibillion-dollar scam that victimized investors from around the world, and Richard Harkless, of Riverside, Calif., was sentenced to 100 years, also in 2009, for an investment fraud that cost its victims $40 million.

When Peppel begins serving his sentence, it could be at the Hamilton County Justice Center in downtown Cincinnati, designated to house federal prisoners.

Once he arrives, he’ll be searched and ordered to wear the facility’s black-and-white striped two-piece uniform, said county sheriff’s spokesman Steve Barnett. He’ll be housed in a 5-foot by 10-foot cell in an area of the jail where a handful of other federal prisoners are kept. They’re in for such crimes as drug trafficking, bank robbery or money laundering. Peppel will find in his cell a metal bunk bed with a thin mattress, a toilet and a sink.

Ira H. Stanley, 59, MCSi’s former chief financial officer and the only other company executive to plead guilty to criminal charges in the case, is to be sentenced Nov. 9 by Beckwith in Cincinnati.

Stanley pleaded guilty in 2007 to mail fraud, conspiracy to commit mail fraud, wire fraud and securities fraud, and false certification of a financial report by a corporate officer.

Contact this reporter at (937) 225-2242 or


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A service of YellowBrix, Inc. Publication date: 2011-10-30

Source: By John Nolan and Steve Bennish, Dayton Daily News, Ohio

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