FBI: Cyber-hardware for the city got resold

Federal investigators yesterday charged a computer consultant for Newark with using his role as a city contractor to defraud Cisco Systems Inc. of $10 million.

After FBI agents executed a search warrant at his Piscataway home, Michael Kyereme confessed to exploiting the technology giant's program for replacing faulty hardware, authorities said.

U.S. Magistrate Judge Mark Falk set a detention hearing for Kyereme, a citizen of Ghana, for Thursday. He is being held without bail and faces up to 20 years in prison and a $250,000 fine.

Kyereme, a graduate of the New Jersey Institute of Technology and Seton Hall University, provided information technology services for Newark as an independent contractor and began his scheme in August 2002, authorities said.

Under a service contract with Cisco, Newark is entitled to immediately obtain replacement parts for faulty hardware as long as the old hardware is returned within 10 days.

Kyereme fraudulently ordered replacement parts on behalf of the city, then sold them for his own profit, according to a complaint signed by FBI Special Agent Jason DiJoseph. He often never sent back replacement parts. When he did, they were often parts from other computer companies or Cisco parts of drastically lower values, the complaint said.

On one occasion, he received a $260,000 one-port optical card from Cisco and sent back a $2,000 eight-port adapter, authorities said. The city computer mainframe doesn't even contain the part, which typically is used by global companies like PepsiCo and Exxon, authorities said.

In all, Kyereme ordered 280 replacement parts from Cisco, authorities said, but returned only 132 of the allegedly faulty parts. Of those, only 33 matched the parts he sent. Kyereme also ordered replacement parts on behalf of Newark's police and fire departments.

When FBI agents searched Kyereme's home, they found more than $3 million of Cisco parts that Kyereme had ordered on Newark's behalf, authorities said.

"I knew what I was doing was wrong and that it was stealing," he told agents, according to the complaint.

Authorities said Kyereme told them he used a computer reseller outside of New Jersey to sell the stolen parts. He said his contact at the company, which authorities declined to identify, would provide him with a wish list of Cisco parts. Kyereme told authorities he was offered an "overwhelming" amount of cash for his role in the scheme, authorities said.

Kyereme's arrest marked the second time in a week that federal prosecutors charged someone with defrauding Cisco's replacement part program. Federal prosecutors in Boston charged a Massachusetts businessman in a similar scheme last Tuesday.

Assistant U.S. Attorney Deborah Gannett declined to say whether the two cases were connected.

Cisco is one of the world's top makers of Internet networking gear and made $28.5 billion in sales last year. A spokesman for the company said yesterday the two cases did not represent a pattern. He said the replacement part program -- called SmartNet -- handles 3,300 service requests a day.

"We are aware of this issue, and we are cooperating fully with authorities on it," said John Noh, the Cisco spokesman.

In his appearance in federal district court yesterday, Kyereme was silent as he stood in baggy jeans and an oversized jersey. His family sat behind him, at times dabbing tears with tissues.

Eric John Marcy, Kyereme's attorney, requested that his client be released on bail. He said Kyereme, who has a wife and two children who are American citizens, was not a flight risk.

"He has extensive ties to this state," said Marcy, who declined comment after the hearing.

But the judge set the detention hearing at the prosecutor's request.

Kyereme was paid approximately $82 per hour by the city for his work as a senior engineer. The company that employs him, Specialty Systems of Toms River, was paid $13,000 per month. The company is on the state's approved vendor list, said Lupe Todd, a spokeswoman for Mayor Cory Booker.

"It's a total surprise," said Emil Kaunitz, president of Specialty Systems. "He's a good worker."

Kaunitz said Kyereme, who has worked for the company since 2001, has been fired. Todd said Kyereme has been barred from doing business with the city.

City officials said they were cooperating with the FBI investigation. They declined to discuss how Kyereme could have ordered parts without anyone's knowledge.

Todd said an engineer has been brought in to audit and secure the city's computer systems.