CompUSA 2015 Annual Report Download - page 17

Table of Contents
·We would be exposed to liability, including substantial fines and penalties and, in extreme cases, loss of our ability to accept credit cards, in the event
our privacy and data security policies and procedures are inadequate to prevent security breaches of our consumer personal information and credit
card information records.
Inprocessingoursalesordersweoftencollectpersonalinformationandcreditcardinformationfromourcustomers.TheCompanyhasprivacyand
datasecuritypoliciesinplacewhicharedesignedtopreventsecuritybreaches,however,ifathirdpartyorarogueemployeeoremployeesareableto
bypassournetwork security, “hackinto”our systems or otherwisecompromise our customers’ personalinformation or credit cardinformation, we
couldbesubjecttoliability.Thisliabilitymayincludeclaimsforidentitytheft,unauthorizedpurchasesandclaimsallegingmisrepresentationofour
privacyand datasecuritypracticesorotherrelated claims. WhiletheCompany believes itconformstoappropriate Payment CardIndustry(“PCI”)
securitystandardswherenecessaryforitsvariousbusinesses,anybreachinvolvingthelossofcreditcardinformationmayleadtoPCIrelatedfinesin
themillionsofdollars.Intheeventofaseverebreach,creditcardprovidersmaypreventouracceptingofcreditcards.Anysuchliabilityrelatedtothe
aforementionedriskscouldleadtoreducedprofitabilityanddamageourbrand(s)and/orreputation.
·Failure to protect the integrity, security and use of our customers’ information could expose us to litigation and materially damage our standing with
our customers.
The use of individually identifiable consumer data is regulated at the state, federal and international levels and we incur costs associated with
information security – such as increased investment in technology and the costs of compliance with consumer protection laws.  Additionally, our
internet operations and website sales depends upon the secure transmission of confidential information over public networks, including the use of
cashlesspayments.Whilewehavetakensignificantstepstoprotectcustomerandconfidentialinformation,therecanbenoassurancethatadvancesin
computercapabilities,newdiscoveriesinthefieldofcryptography,theeffortsof“hackers”andcybercriminalsorotherdevelopmentswillpreventthe
compromiseofour customer transaction processingcapabilities andourcustomers’ personal data.  If anysuchcompromiseofour security were to
occur,itcouldhaveamaterialadverseeffectonourreputation,operatingresultsandfinancialconditionandcouldsubjectustolitigation.
·Sales to individual customers expose us to credit card fraud, which impacts our operations. If we fail to adequately protect ourselves from credit card
fraud, our operations could be adversely impacted.
Failuretoadequatelycontrolfraudulentcreditcardtransactionscouldincreaseourexpenses.Increasedsalestoindividualconsumers,whicharemore
likelytobepaidforusingacreditcard,increasesourexposuretofraud.Weemploytechnologysolutionstohelpusdetectthefraudulentuseofcredit
cardinformation.However,ifweareunabletodetectorcontrolcreditcardfraud,wemaysufferlossesasaresultofordersplacedwithfraudulent
creditcarddata,whichcouldadverselyaffectourbusiness.
·Our business is dependent on certain key personnel.
Our business depends largely on the efforts and abilities of certain key senior management.  The loss of the services of one or more of such key
personnelcouldhaveamaterialadverseeffectonourbusinessandfinancialresults.
·We are subject to litigation risk due to the nature of our business, which may have a material adverse effect on our results of operations and business.
From time to time, we are involved in lawsuits or other legal proceedings arising in the ordinary course of our business. These may relate to, for
example,patent,trademarkorotherintellectualpropertymatters,employmentlawmatters,statessalestaxclaimsoninternet/ecommercetransactions,
productliability,commercialdisputes,consumersalespractices, orothermatters.Inaddition,asapubliccompanywecouldfromtimetotimeface
claimsrelatingtocorporateorsecuritieslawmatters.Thedefenseand/oroutcomeofsuchlawsuitsorproceedingscouldhaveamaterialadverseeffect
onourbusiness.See“LegalProceedings”.
FollowingthepreviouslyreportedindependentinvestigationofGilbertFiorentinoandCarlFiorentinobyourAuditCommitteein2011(inresponseto
awhistleblowerreport)foravarietyofimproperacts,thesubsequentterminationoftheiremploymentandtheenteringintobyGilbertFiorentinoofa
settlement agreement with the SEC, on November 20, 2014 the United States Attorney’s Office (“USAO”) for the Southern District of Florida
announcedthatGilbertFiorentinoandCarlFiorentinohadbeenchargedwithmailfraud,wirefraudandmoneylaunderinginconnectionwithascheme
todefraud TigerDirect and Systemax.Specifically,thechargesset forth aschemetoobtainkickbacksand other benefits, andtoconcealthisillicit
income from the IRS, all while Gilbert Fiorentino and Carl Fiorentino were employed as senior executives at the Company’s North America
TechnologyProductsbusiness.OnDecember2,2014,theUnitedStatesAttorney’sOfficeannouncedthatGilbertFiorentinoandCarlFiorentinohad
pledguiltytovariouscharges,andonMarch3,2015,GilbertFiorentinoandCarlFiorentinoweresentencedtosixtyandeightymonthsimprisonments,
respectively.Followingcompletionoftheirsentences,eachistobeplacedonsupervisedreleaseforaperiodofthirty-sixmonths.OnMarch1,2016,
theUnitedStatesDistrictCourtfortheSouthernDistrictofFloridaawardedtheCompanyapproximately$36millioninrestitutionfromGilbertand
CarlFiorentino,whichtheCompanywillutilizeallavailablemeanstocollect.
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