Co-Founder of High-Tech Company Sentenced to Prison for Wire Fraud, Mail Fraud, and Money Laundering
Former CEO Transferred Company Money to Girlfriend to Pay for Personal Luxuries

MARK E. PHILLIPS, 36, of Seattle, Washington, was sentenced today in U.S. District Court in Seattle to 48 months in prison, three years of supervised release, and a fine of $15,000 for four counts of wire fraud, one count of mail fraud, and two counts of money laundering. PHILLIPS was convicted March 2, 2011, following a two-week jury trial. PHILLIPS, the founder and former CEO of MOD Systems, Incorporated, has been in custody since his pretrial release was revoked in August 2010. PHILLIPS was first charged and arrested in March 2010. At sentencing U.S. District Judge John C. Coughenour told him, “America is the place to come if you have an idea...to invest in the idea...to see that idea grow and change the world...that is all in jeopardy when people’s greed and lies elude the system of laws.”

According to filings in the case and testimony at trial, PHILLIPS is a co-founder of MOD and served as a director and chief executive officer of MOD from its founding in 2005, until March 27, 2009. MOD is a start-up technology company engaged in the business of developing music and video downloading technology for retail kiosks. The company notified federal investigators of suspected embezzlement of corporate funds by PHILLIPS on March 16, 2010, which caused federal investigators to examine a series of wire transfers made out of the company’s account. Records indicate that PHILLIPS caused company money to be transferred to a bank account controlled by his then-girlfriend. The money was supposed to be used to pay for services provided by the woman’s company, but she never invoiced the company for any services or kept any of the money transferred into her account. Instead, the money was controlled by PHILLIPS, and he directed her to pay for luxuries for himself, including an expensive watch and a personal investment in another start-up company. Additionally, PHILLIPS had transferred $1.5 million out of the company to his personal account in April 2008, as a down payment for a $2.3 million penthouse. PHILLIPS lied to the MOD financial vice-president, claiming the board had approved the transfer. PHILLIPS was forced to repay the money.

In asking for a lengthy sentence, prosecutors wrote to the court that PHILLIPS’ fraud tore the trust of the entrepreneurial community. “Phillips not only put MOD’s ideas—the innovative products that MOD was developing—at risk, but he put its shareholders, and its employees’ livelihoods at risk. These small companies have no chance at success if their officers and directors do not follow and adhere to these basic principles. A significant sentence is appropriate in this case because it will send a clear signal to the community that this type of fraud, looting, and embezzlement by corporate officers and directors trusted to build companies, not destroy them, is not tolerated.”

The case was investigated by the FBI, the Internal Revenue Service Criminal Investigation (IRS-CI) and the U.S. Postal Inspection Service (USPIS). The case was prosecuted by Assistant United States Attorneys Aravind Swaminathan and Matthew Diggs.

For additional information please contact Emily Langlie, Public Affairs Officer for the United States Attorney’s Office, at (206) 553-4110 or Emily.Langlie@USDOJ.gov.