SHERMAN, Texas — Two former executives of a Virginia-based credit card processing company received 36 months of probation after pleading guilty to defrauding the city of Sherman.
As part of the plea agreement, Edward Walsh Vaughan, the former president of Electronic Transactions Systems Corp., and Hadi Akkad, the company’s former executive vice president, will forfeit $5.3 million and $1.9 million, respectively.
Both men had been charged with two counts of conspiracy — one for wire fraud and one for mail fraud. Each count carries a maximum penalty of 30 years in prison.
Vaughan and Akkad faced a third trial in U.S. District Court in the Eastern District of Texas after two previous criminal trials ended with hung juries on wire fraud charges. A jury found Akkad not guilty of money laundering in the first trial.
“Third time is a charm,” said Chief U.S. District Judge Amos L. Mazzant III in Sherman. “Don’t know if government could get a conviction or the defendants could get an acquittal.”
Both Vaughan and Akkad apologized to the court and the city of Sherman.
“I rededicate myself to leading a productive life,” Akkad told Judge Mazzant. “I will never be in this position again and appreciate a chance at redemption.”
After signing off on the plea agreement, Judge Mazzant shook hands with both defendants and told them, “Good luck.”
Vaughan and Akkad pleaded guilty only to a wire fraud charge against the city of Sherman but not to the much broader federal charges initially filed against them.
Federal investigators at first alleged that the management team defrauded approximately 7,000 merchant clients out of millions of dollars, adding a hidden markup to nearly 87 million credit card transactions. The city of Sherman was among the clients that raised concerns about the billing, which spurred the investigation.
According to the indictment, Vaughan and Akkad told customers ETS used “Interchange-Plus” transparent pricing, where clients paid bank-set interchange fees plus a negotiated markup.
Prosecutors alleged, however, that they secretly embedded extra surcharges and combined fees for different card types that were not disclosed in contracts or monthly statements. Vaughan and Akkad allegedly logged into the “backend” of the ETS system to alter debit card interchange rates and directed employees to ensure the markups were applied.
When clients or staff brought up discrepancies, prosecutors claimed, the men denied any wrongdoing, gave token refunds and rewarded loyal employees with bonuses and luxury vehicles — including a 2017 Mercedes-Benz GLS 450 — to discourage whistleblowing.
The scheme inflated the revenue and value of ETS, allowing the pair to sell the company in 2018 for about $170 million.
The indictment said Vaughan received approximately $107 million from the sale, and Akkad about $33 million. They used the money to buy Ferraris, Mercedes-Benz SUVs, private jets, and luxury homes in Virginia, California and Washington, D.C.
Prosecutors sought forfeiture of dozens of luxury assets, including jewelry from Tiffany & Co. and three aircraft — a Falcon 50 jet, a Cessna 182T and a Piaggio P180 Avanti — along with more than $12.9 million in brokerage accounts.
Under the plea agreement, most of the assets will be unfrozen and returned, except for the $8 million in total forfeitures, which will be dispersed equitably to the city of Sherman and thousands of other merchants.
Because the assets have been frozen, attorneys for the defendants have gone unpaid since the first indictments three years ago.
“This is a rare case, very unusual,” said Jeff Kearney, co-counsel for Akkad. “I’ve never heard of a federal case being tried a third time in my 50 years of practicing law.”
Kearney said the FBI tried in Virginia to get authorities to prosecute Vaughan and Akkad on wire fraud and money laundering charges. “But they wouldn’t take the case,” he said.
Then, after two trials in Texas ended in hung juries on wire fraud charges, Kearney said the two defendants, with their assets still frozen, made a “business decision that this must end.”
“Besides the loss of a loved one, the most stressful thing a man can go through is to go to trial,” Kearney of Fort Worth said.
He gave credit to his co-counsel, David Gerger of Houston, for reaching out to prosecutors to reach a plea deal.
“I never thought this case would get resolved,” Kearney said. “His persistence and ingenuity got this settled.”
When asked how he reached a plea deal, Gerger said, “You just keep making the points that you always make again and again.”
“This would have been the fourth bite of the apple,” Gerger said. “Virginia declined to prosecute, and then the three trials here.”
In turn, Gerger gave credit to attorney Heather Peterson of Houston, who he said put the defense together.
“We are happy our client is finally able to put this behind him,” she said.
U.S. Assistant Attorney Anand Varadarajan and press officer Davilyn Walston declined to comment.