Fry’s exec accused of $65 million fraud to pay off gambling debts

A one-time computer salesman who rose through the ranks to help build Fry’s Electronics into a robust retailer is facing allegations that he defrauded the San Jose company out of $65 million, much of which he used to pay off enormous gambling debts in Las Vegas.

Ausaf Umar Siddiqui, 42, who goes by “Omar” and was Fry’s vice president of merchandising and operations, appeared Monday in federal court, where prosecutors filed a complaint alleging he masterminded a “secret kickback scheme to defraud Fry’s Electronics of millions of dollars.”

Fry’s executives didn’t know about the illegal kickbacks, the federal complaint states. After 20 years with the company, Siddiqui was fired Monday.

Siddiqui was known around the office for driving fast cars, carrying wads of $100 bills in his pocket and boisterously rooting during sports events he watched on the four TV screens in his office. He spent $162 million in three years at the MGM Grand Casino and Las Vegas Sands Casino, according to his bank statements detailed in the complaint written by IRS Agent Andres Gonzalez.

The suspected scheme occurred from 2005 until mid-October when a high-level Fry’s employee walked into Siddiqui’s office at 600 E. Brokaw Road and saw confidential spreadsheets, letters and extraordinarily high commission amounts on Siddiqui’s desk.

Siddiqui is expected to be formally charged with money-laundering and wire fraud in U.S. District Court on Jan. 15.

According to the complaint, which was unsealed Monday, Siddiqui made “secret, backroom sales contracts to vendors, and in return, vendors gave him a kickback.”

He convinced Fry’s that the company should eliminate sales representatives on his accounts, and instead, he would act as a middleman between vendors and Fry’s. He promised that he would save the company a lot of money that way. But instead, the complaint alleges, he ended up charging exorbitant commissions — up to 31 percent, or ten times the usual amount — to the vendors, which he funneled to his own straw company, PC International.

“It was his responsibility to find Fry’s the best price,” said IRS spokeswoman Arlette Lee. “He was allegedly causing Fry’s to overpay millions on merchandise.” None of the vendors are household names.

Those vendors were guaranteed business, so Siddiqui would have a steady cash flow to pay off casinos, the complaint alleges.

One of the vendors, Phoebe Micro of Fremont, insisted the company was victimized by Siddiqui.

“He was claiming himself as one of the owners of Fry’s Electronics,” said Peter Lui, Phoebe Micro’s general manager. Siddiqui asked Phoebe to pay a “high marketing fee” so Fry’s would prominently display Phoebe’s products — mostly household wireless routers — in Fry’s newspaper ads and in stores.

“We paid him millions of dollars” in such marketing fees over the past two or three years, Lui said, and didn’t realize there was anything wrong with the arrangement. The payments seemed worthwhile “because we were continually seeing our product being promoted heavily from Fry’s.”

Something obviously seemed wrong to the employee who saw the documents on Siddiqui’s desk and called the IRS. Friday, federal agents swarmed Fry’s corporate headquarters and stunned co-workers watched as Siddiqui was arrested and taken away in handcuffs.

The reaction of employees and management to Siddiqui’s arrest “is one of surprise and shock — and that’s an understatement,” said Fry’s spokesman Manuel Valerio.

He made it clear, however, that although “Mr. Siddiqui may have prospered, neither Fry’s nor Fry’s customers were damaged by this.” He said Siddiqui’s actions didn’t result in higher prices for Fry’s customers.

In court Monday, a serious and clean-shaven Siddiqui appeared worried. He stood mostly silent, wearing the standard bright orange shirt of the Santa Clara County Jail, where he was held over the weekend. Through his criminal attorney, Sam Polverino, he declined to comment.

U.S. District Court Judge Richard Seeborg altered Siddiqui’s no-bail conditions Monday, allowing him to post $300,000 bond and be monitored with an electronic bracelet. The judge also ordered Siddiqui to stay away from Las Vegas, and was assured through Siddiqui’s attorneys that he wouldn’t fly there on the Fry’s corporate jet, or casino jets, which he apparently has done before.

“I know you do a great deal of travel to Las Vegas,” Seeborg said. “That’s not allowed anymore. Nevada is off-limits.”

Before reducing the bail, Assistant U.S. Attorney Thomas Moore and defense attorneys discussed how much Siddiqui is worth, revealing that he owns a $1 million Palo Alto condominium and a Ferrari.

A woman who appeared in court on Siddiqui’s behalf declined to comment. During the court hearing, conversations in court also revealed that Siddiqui has no close family; he is estranged from his siblings and his parents are deceased. He has no wife or children, and according to his civil attorney, who appeared as a “friend of the court,” Siddiqui has several casinos after him to pay off gambling debts.

How much does he owe the casinos?

“I don’t know the answer to that question,” said Eric Sidebotham, an attorney who represents clients facing collections. “It’s very complex.”

MGM Grand Casino refused to comment Monday, and Sands Casino didn’t respond to interview requests.

In general, Sidebotham said he has seen too many “very successful men, single, middle-age fall into a gambling addiction trap. They just get in and they can’t get out.”

According to the criminal complaint, Siddiqui began working at Fry’s Electronics in 1988, three years after the company was founded. He landed in one of the top positions of Fry’s management, after working his way up from salesman, to department manager, to director of advertising to vice president of merchandising in 2003, where he was responsible for all of Fry’s purchasing, and supervised 120 employees. He earned an annual salary of $225,000 at Fry’s, which has 34 retail stores nationwide and was listed in Forbes magazine in 2007 as having 14,000 employees and generating a revenue of $2.35 billion.

While Siddiqui was friendly with Fry’s owners John, David and Randy Fry, “they were not golfing buddies,” Valerio said.

In addition to Phoebe Micro, Siddiqui also worked with Lead Data International, U.S. Media Technologies and Elite Group Computer Systems. The companies sell a variety of computer equipment, wireless cards and Internet cameras. Some of the correspondence between the companies and Siddiqui was discovered on his desk when the Fry’s informant saw it,﻿ and other documentation was discovered in Siddiqui’s trash Nov. 24.

A company spokeswoman at Lead Data in Cerritos, which sells digital photo frames and portable media players, said “everything is done legally and everything is done by the book” at her company. She didn’t give her full name, and said she wasn’t allowed to give any further information.

Lee, the IRS spokeswoman, wouldn’t comment specifically on whether or not the vendors acted illegally, but she did say: “In a typical case, we’d make contact with anyone who is alleged to be involved. We’re going to want to talk to them to see what they know.”

Mercury News staff writers Julia Prodis Sulek, Steve Johnson, Mark Gomez and researcher Diana Stickler contributed to this report. Contact Lisa Fernandez at lfernandez@mercurynews.com or (408) 920-5002.

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