Peter Krouse, The Plain Dealer
CLEVELAND, Ohio — A Cuyahoga County grand jury indicted four InkStop Inc. executives Wednesday on charges that they defrauded investors out of $6 million.
Prosecutors said InkStop — the Warrensville-Heights-based company that closed abruptly last October — masked the financial health of the company and used new investments to pay off old investors in a scam similar to a Ponzi scheme. Some investors who got their money were close associates.
Those named in the 32-count indictment were Dirk Kettlewell, chief executive officer; his wife Dawn Callahan-Kettlewell, vice president of sales; Mark Race, vice president of real estate and construction; and Dale Fuller, chief financial officer. The charges included theft, securities fraud and corrupt activity.
Kettlewell, who founded InkStop, had been senior vice president for technology at OfficeMax.
In the indictment, county prosecutors claim that in 2008 the defendants used vendor promotional credits to make InkStop appear in better shape than it was. A vendor promotional credit is like a rebate to a business offered by a vendor, Assistant County Prosecutor Nick Giegerich said.
In the case of InkStop, it falsely claimed to have purchased $29 million in cartridges from a vendor, he said, and to have received rebates of $6.3 million based on that income.
InkStop accounted for the fake income and rebates in its earnings, Giegerich said, making the company look as if it were not losing as much money. The company then sold privately placed stock, as well as notes convertible to stock, based on a bogus financial report.
Prosecutors also claim that the defendants sold privately placed stock and convertible notes in 2009 by telling investors the company was going to turn a profit in the fourth quarter of that year, among other claims, Giegerich said, all the while knowing the company was actually in deep financial trouble.
The defendants said the money raised from the sale of the securities would be used for such things as buying inventory for Black Friday, the big shopping day after Thanksgiving, Giegerich said. But the money was actually used to pay off debt and to payoff some previous investors, including members of the InkStop board of directors, he said.
InkStop opened its first office supply store in Independence in 2006. The company projected annual sales of $40 million from its 120 stores nationwide in early 2008. In October of 2009 the company announced it was closing all its 152 stores.
Story Compliments Of The Plain Dealer