Software CEO Admits to Scamming Millions From Investors in Ersatz 'iTunes'

Wwebnet CEO Robert Kelly could face up to 40 years in prison

The CEO of a software company that was supposedly developing a service similar to Apple's iTunes has admitted to scamming more than US$2 million from investors by diverting the money into offshore accounts and spending it on personal matters.

Wwebnet CEO Robert Kelly pled guilty to securities and wire fraud charges on Tuesday in U.S. District Court for the Southern District of New York, according to a press release from U.S. Attorney Preet Bharara's office.

The $2 million was supposedly "intended for the development of a software program capable of transmitting music, videos, and movies over the Internet," according to the release. But instead, Kelly used the money to trade options, to pay his personal income taxes, and for other purposes unrelated to software development or other legitimate business expenses, it adds.

Kelly solicited funds from investors between 2004 and 2008, according to the release. At least $2 million of the money was diverted into a personal trading account in the Cayman Islands, Bharara's office said.

Kelly also lied to his own software developers, saying he wasn't able to raise the money needed to develop the product. As a result, the company failed, according to the release.

Meanwhile, Kelly was paying himself $360,000 in salary and also charging the cost of a $9,000-per-month New York apartment to the company, according to court records.

He faces up to 40 years in prison, and has agreed to forfeit $2.1 million as well as separately pay $2.1 million in restitution. Sentencing is scheduled for July 17.

One of Kelly's victims invested more than $5.5 million in Wwebnet, according to the criminal complaint lodged against him in September 2012.

Kelly told the victim that the company's software application was "ready to go," but more money was needed to keep it updated, according to the complaint.

He told another victim Wwebnet's product was "advanced" and comparable to iTunes, but the company needed more money to "finalize" it and sign deals with media companies for entertainment content, the complaint adds.

Kelly made other misrepresentations to Wwebnet's CTO, who is not named in the complaint. After hiring the CTO, he placed him in a small office in Tulsa, Oklahoma, which contained only "a few small Dell desktop computers" and no "state of the art equipment."

The CTO ended up doing most of his work on a personal laptop, and at Kelly's direction that work consisted of creating software demos that would purportedly be used to court "potential investors and representatives from entertainment companies," according to the complaint.

Kelly repeatedly rebuffed the CTO's requests for money to build an actual, functioning product, saying "we'll get there when we get the money," it adds.

He could not be reached for comment on Wednesday, and no attorney was listed for him in court records. In a court filing he made in December 2012, Kelly denied the allegations against him.

Chris Kanaracus covers enterprise software and general technology breaking news for The IDG News Service. Chris' email address is Chris_Kanaracus@idg.com

This story, "Software CEO Admits to Scamming Millions From Investors in Ersatz 'iTunes'" was originally published by IDG News Service Boston Bureau .

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