UPDATE 2-Headphone maker Koss fires auditor after firing VP

* Grant Thornton fired as auditor

* Firing follows criminal complaint against ex-VP

* Shares have not traded since Dec. 21

(Adds Grant Thornton comment, bylines)

By Jonathan Stempel and Emily Chasan

NEW YORK, Jan 4 (Reuters) - The headphone maker Koss Corp KOSS.O said on Monday it fired Grant Thornton LLP as its auditor, will restate at least three years of results and has expanded an internal probe into alleged embezzlement by a finance executive who was also terminated.

The Milwaukee-based company said it dismissed Grant Thornton on Dec. 31 after approval by its board of directors. It said it is evaluating replacements and expects to receive a recommendation from its audit committee within one week.

Koss also said it expanded its internal probe into the activities of its former vice president of finance, Sujata “Sue” Sachdeva.

It said the amount of unauthorized transactions conducted since its 2005 fiscal year exceeds $31 million, compared with the more than $20 million it reported on Dec. 25.

The company said investors should not rely on financial statements since the end of its 2005 fiscal year and that it plans restatements for at least its last three fiscal years.

Koss had reported net sales of $38.2 million in its latest fiscal year, which ended June 30.

In a statement, Grant Thornton said Koss did not hire it “to conduct an audit or evaluation of internal controls over financial reporting. Establishing and maintaining effective internal controls is management’s and the board’s responsibility.”

Sachdeva’s lawyer, Michael Hart, a principal at Kohler & Hart LLP in Milwaukee, did not immediately return a call seeking comment.

Koss fired Sachdeva after an alleged multi-year shopping spree in which she bought millions of dollars of expensive clothes, jewelry and other personal items.

According to a criminal complaint filed last month in Wisconsin federal court, Sachdeva also used company funds to pay down her credit card bills.

Koss said last month it also placed two accounting employees who worked for Sachdeva on unpaid leave.

The alleged fraud was discovered after American Express Co AXP.N noticed that card bills were being paid via several large wire transfers originating from a Koss account.

Sachdeva acknowledged to the FBI that she used her position at Koss to approve wire transfers and falsified Koss’ records to hide her tracks, the complaint said.

For an earlier story on the case, please click [ID:nN25146622]

Koss shares have not traded since Dec. 21, when the company asked Nasdaq to impose a trading halt. They last traded at $5.51. (Reporting by Emily Chasan and Jonathan Stempel; editing by Andre Grenon)