Federal district court judge Paul Gardephe recently spared Keleil Isaza Tuzman from additional jail time, despite Tuzman’s December 2017 convictions for securities and mail fraud, the latest twist in the long, strange saga of KIT Digital. Tuzman was the founder and former CEO of KIT Digital Inc., a publicly traded software startup that offered video management products, but which ended up bankrupt and is now called Piksel Inc. The US Attorney sought a prison term of 17.5-22 years for Tuzman.

Tuzman, and co-defendant Omar Amanat, who was sentenced to five years in jail and fined $175,000, were convicted on multiple counts of manipulating the stock price for KIT Digital and for defrauding investors in a hedge fund known as Maiden Capital.

The KIT Digital conspiracy had three parts. First, from 2009 to 2012, Omar Amanat and his brother, Ifran, helped Maiden Capital conceal losses on its investment in Enable, an asset management firm run Irfan Amanat. In 2008, Maiden Capital invested $1 million in Enable and provided a $2 million loan. Enable used that money to cover KIT Digital’s redemption of its own investment in Enable. In March 2009, the Amanat brothers told Maiden that they lost his entire $3 million investment. Ifran Amanat and Maiden generated fictitious client account statements that failed to disclose the millions of dollars in Enable-related losses. When Maiden’s investors wanted their non-existent money back, KIT Digital helped cover the redemption requests through 2011.

For their second scheme, from December 2008 to September 2011, Amanat, Tuzman, and Maiden manipulated the price of KIT Digital stock by having Maiden trade up the value to benefit Tuzman’s personal holdings.

In the third scheme, Tuzman and members of KIT Digital’s management inflated revenue to make KIT Digital look more attractive for a potential sale. A sale to private equity investors never materialized, however, dooming Tuzman. In 2012, KIT Digital’s board requested Tuzman’s resignation after the company’s auditors dug into KIT Digital’s relationship with Enable. For a more detailed discussion of the facts of the scheme, see the Court’s recitation in United States v. Tuzman, No. 15 CR. 536 (PGG), 2021 WL 1738530 (S.D.N.Y. May 3, 2021), reconsideration denied, No. 15 CR. 536 (PGG), 2021 WL 3167708 (S.D.N.Y. July 27, 2021).

Tuzman, a Harvard alumnus and former Goldman Sachs banker, built KIT Digital into an important player in the multiscreen video management and delivery market. Amanat was an investor in media, finance and technology companies, including the studio behind the “Twilight” movie franchise.

After the schemes unraveled, Tuzman was arrested in September 2015 in Colombia where he spent 10 months in gruesome conditions before being extradited to the United States. At Tuzman’s sentencing earlier this month, Judge Gardephe explained he did not want to order additional jail time because “the risk associated with sending Mr. Tuzman back to prison, the risk to his mental health, is just too great.” According to Mr. Tuzman, he endured horrific conditions including five months in solitary confinement and was raped at knifepoint. He was extradited to the United States in 2017. See Andrew Ross Sorkin, Entrepreneur, Charged in U.S., Recounts Abuse in Colombia Prison (NYT Sept. 25, 2017).

The case is United States v. Tuzman & Amanat, No. 15 CR. 536 (PGG), 2021 WL 1738530 (S.D.N.Y. May 3, 2021), reconsideration denied, No. 15 CR. 536 (PGG), 2021 WL 3167708 (S.D.N.Y. July 27, 2021).