A former executive at a San Jose technology company is accused of diverting $2 million in software license fees to benefit himself and co-conspirators, according to federal prosecutors.

Kevin Chau, 64, of Mountain View, appeared in U. S. District Court in San Jose July 21 to face a charge of wire fraud, and was released on bond by District Judge Beth Labson Freeman, according to a joint press release from U. S. Attorney Ismail J. Ramsey and the FBI

Ramsey charged that Chau engaged in a years-long scheme to defraud his employer – identified in court papers only as “Company-1” – by directing millions of dollars of business to entities he controlled and by diverting software license fees to benefit himself and co-conspirators. The co-conspirators, Richard Sze, 56, of Saratoga, and Suryanarayana Murthy Bobba, 55, of Los Altos, both former employees of the same technology company as Chao, face related charges, Ramsey said in a statement.

Chao originally was arrested on Oct. 29, 2021. He was a former Global Business Director at a technology company identified in the Information as Company-1. According to prosecutors, Chao “had a duty of loyalty to, and a duty to disclose outside business to, Company-1.”

“Instead,” the court papers allege, “Chao engaged in a scheme in which he directed millions of dollars in business to entities in which he had an interest but kept his control and financial interest secret from Company-1.”

Prosecutors described various aspects of the alleged scheme uncovered in the FBI investigation:

First, Chao defrauded his employer by working with two other company employees, Sze and Bobba, to direct software development service contracts to Zillsoft, a company they controlled. Chao, Sze, and Bobba did not inform Company-1 that they controlled Zillsoft.

Chao allegedly directed millions of dollars in business to Zillsoft, then split the profits with Sze and Bobba. The court papers further allege that Chao continued the scheme by arranging for the sale of Zillsoft to a third entity that also performed work for Company-1, and the co-conspirators again secretly profited from Company-1’s business with that entity.

According to prosecutors, Chao and Sze formed another entity, SPSoft China, also to steer contracts and payments to themselves. Chao profited about $5.4 million from this arrangement. He concealed his control and interest in the company from Company-1 to continue to direct millions of dollars in business to the entity, according to the allegations.

In another aspect of the scheme, Chao and Bobba arranged for Company-1 to obtain a license to a software program for Company-1, and then secretly arranged to divert more than $2 million to themselves without disclosing the diversion to Company-1.

Chao’s next appearance is scheduled for October.

Sze was also previously arrested on a criminal complaint unsealed on Oct. 29, 2021, and is charged with one count of conspiracy,. He made his initial appearance on May 9, 2023. a hearing before Judge Freeman on October 3, 2023 . Bobba was charged by an Information filed on April 24, with one count of conspiracy and made his initial appearance in court on May 16.

If convicted, Chao faces a maximum sentence of 20 years imprisonment, and defendants Bobba and Sze face a maximum sentence of 5 years imprisonment. Each defendant faces a fine of $250,000, plus restitution if appropriate, for each violation.