Canopy Financial Execs Accused of Stealing from Clients

Thus far, the Canopy Financial story has been about how some company execs allegedly cooked the books to secure more than $60 million in new venture capital investment. But we’ve now learned that the scheming may have been far broader, and affected many more people than just Canopy’s investors and (mostly laid-off) employees.

In a letter sent yesterday to its customers, Canopy said that it has reason to believe that former executives were skimming from the Health Savings Accounts that Canopy’s technology is designed to help administer. In other words, they were stealing from ordinary folks employed by companies like Fifth Third Bank and Sovereign Bank (Canopy also claimed many clients outside the financial services space, but we’ve been unable to confirm their validity).

Canopy’s letter did not say how much money might have been taken, but we hear that it was well in excess of just a few hundred thousand dollars.

Also unclear is just how such a heist would have worked. Health Savings Accounts get pooled into banks as escrow, and it would appear that the former execs somehow tapped into those pooled accounts. Perhaps that’s what FBI Special Agent Brent Potter was referring to in his affidavit, as part of a criminal complaint against former Canopy president Jeremy Blackburn:

20. In July 2008, Individual B opened an account at Ridgestone Bank, ostensibly for the purpose of holding Health Savings Account participant funds for a Canopy client. In 2009, Ridgestone Bank questioned the declining balances in the account, and asked Individual B to provide an audited financial statement for Canopy.

The criminal complaint did not explicitly name Individual B, but he would appear to be Canopy’s former chief technology officer, Tony Banas.

One final question worth asking is: Where the hell was the board of directors? It’s one thing for some execs to create a second set of books for prospective investors, but quite another to be skimming from accounts that the board should have been keeping tabs on. Were Canopy’s directors complicit, or just asleep on the job? So far, all we know is that these folks — including Glenn Solomon of Granite Global Ventures and John Powers of Stanford Investment Management Co. — are good at keeping silent.

peHUB has placed a call to Canopy’s PR rep, and will update this post if we hear back…

Deb Gage contributed in the reporting of this post

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2 Comments

  • Our firm places people on the boards of many portfolio companies, and I would flip your analysis of where the directors should have done better

    1. Directors cannot be expected to detect executives skimming from company or client accounts. It’s just not part of the job to, say, review or reconcile bank statements.

    2. But they falsely claimed that their financials were audited. In my opinion, they never should have gotten away with that because it’s good practice for a board to have an audit committee, comprised of non-management directors, that meets periodically with the relationship partner and audit partner from the outside auditors. Unless Canopy manager sent in impostors to claim to be KPMG auditors and meet with the board (not beyond the realm of possibility), the board could have discovered the fraud earlier just by following standard industry practice.

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