Former CEO gets 7 days in prison, $5 million fine

CINCINNATI — Michael E. Peppel, who faced a potential prison term of eight to 10 years, was sentenced Monday to spend seven days in federal prison and pay a $5 million fine for his guilty pleas to felony crimes that the government said led to the 2003 failure of the company he led, MCSi Inc., and caused widespread losses for its employees and investors.

U.S. District Judge Sandra Beckwith, who concluded in August that a prison sentence of eight to 10 years would be appropriate under advisory federal sentencing guidelines, said she was moved by 113 letters of support she received from friends and family of Peppel. He was allowed to remain free until the Federal Bureau of Prisons directs him to report to a prison.

Peppel pleaded guilty to charges that he participated in a conspiracy to intentionally report false revenues and earnings at MCSi, to cover up losses and prop up the company’s stock prices.

Beckwith noted that five children, an ailing mother and brother depend on Peppel for support. The judge acknowledged that the sentence she imposed was a “huge” departure from the sentencing guidelines but said she does not believe Peppel is likely to repeat his white-collar crimes and that he does not present a threat to the public. There was no evidence that he had looted the company, the judge noted.

“Don’t disappoint us, Mr. Peppel,” the judge told Peppel after sentencing him.

Peppel, 44, stood in court and replied: “No, your honor.”

Former employees and investors in MCSi, the company once known as Miami Computer Supply, said they were stunned by what they described as a light sentence.

Mary Schwarz of Kettering, whose husband, the late Albert Schwarz, was the company’s president and chief executive officer prior to Peppel, said MCSi’s failure cost the Schwarz family all of their multimillion-dollar investment in the company.

“All the people he hurt, all the money, the millions, the hundreds of millions, that were lost. And that’s all he got?” Mary Schwarz said. “I am absolutely devastated.”

“What a slap in the face to all the employees,” said Libby Hayes, a former human resources director at MCSi. “This is far from being equitable, based on what he was responsible for.”

After Beckwith left the packed courtroom, Peppel’s family and friends stood and applauded him. For much of Peppel’s three-hour sentencing hearing Monday, family, friends and business associates testified, sometimes tearfully, that Peppel has been a good father, helped others find jobs, established scholarships at his alma mater the University of Notre Dame, and lent his business savvy to, a growing Internet mail-order pharmacy company based in Florence, Ky.

Among those who urged the judge to spare Peppel a stiff sentence were his current wife and ex-wife, the present and past chief fund-raising executives for Notre Dame and Mark Whitacre, the former Archer Daniels Midland Co. executive who helped the FBI in a criminal investigation of the company, was portrayed in the 2009 movie “The Informant!” and later served more than eight years in prison for his own crimes. Whitacre and his son, Alex, both testified that imprisonment of a father hurts the family, subjecting his children to emotional distress.

“We’re very grateful,” defense lawyer Ralph Kohnen said of the sentence. Peppel has lost his livelihood and endured public shame and humiliation, Kohnen said.

Dwight Keller, the federal prosecutor who summed up the government’s request that Peppel be imprisoned for eight to 10 years, said wrongdoing that undermines public confidence in the honesty of a company’s financial reporting to the marketplace must be punished, regardless of whether the defendant has a family and well-stocked bank accounts. The victims included 1,300 MCSi employees and at least 281 investors, Keller told the judge.

“He was too proud to admit he was a failure. So he cut corners,” Keller said. “Mr. Peppel is a criminal.”

Peppel, in his statement to the court, said he had committed the wrongdoing in hopes it would get the company “through a rough patch” and back to prosperity.

“I was too optimistic and naive,” Peppel said, adding that he has forfeited most of his family’s financial assets to the government. “I was wrong, and I am sorry.”

The judge declined to order Peppel to pay restitution, saying that it would not be practical because of the number of employees and investors affected.

Peppel must disclose his criminal record to all potential employers, must workout a payment plan with the probation office for his $5 million fine, must submit to random drug testing, and must do community service including public presentations about lessons he learned from his wrongdoing and punishment, the judge ordered. Peppel has agreed to a lifetime ban on his ever serving again as a corporate chief executive, the job he had at MCSi.

Beckwith also ordered three years of federal probation supervision.

Friends have been paying Peppel’s rent in the house where he now lives in the upscale Cincinnati suburb of Indian Hill, the defense said. Peppel’s property forfeitures include his former house in Washington Twp., Montgomery County.

Peppel avoided trial in August 2010 by pleading guilty to willful false certification of a financial report by a corporate officer; money laundering, and conspiracy to commit securities fraud. Under those laws, he faced a potential maximum prison term of 50 years.

The bankruptcy and failure of MCSi, a Kettering-based seller of computers and audiovisual systems, cost approximately 1,300 employees their jobs, benefits and retirement income and left shareholders holding worthless stock.

The government had urged that Peppel receive what it termed suitable punishment, with imprisonment in the range of eight to 10 years. Federal authorities said Peppel caused financial losses of $298 million. The judge concluded that the loss was about $18 million. The defense said there was little or no loss because MCSi was failing anyway, even without the wrongdoing Peppel admitted.

Keller, who led the more than five-year prosecution of Peppel, declined comment on the sentence. The Internal Revenue Service and the Securities and Exchange Commission spent years uncovering details of Peppel’s crimes.

One witness, Dennis Smith, testified against Peppel. Smith said he was a founder of, had dined with Peppel and financially supported him, but that Peppel had more recently shunned him.

“Mike doesn’t have a problem hurting people, as long as there’s money in the deal,” Smith said.

Sentencing takes place next month for the only other former MCSi executive to plead guilty in the case. Ira H. Stanley, 59, MCSi’s former chief financial officer who pleaded guilty in 2007 to crimes similar to those Peppel admitted, is to be sentenced on Nov. 9 by the same judge in Cincinnati.

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