SEC Files Financial Fraud Actions
Many of the financial fraud actions filed by the Commission are based on restatements of the financial statements. Under those circumstances the company must admit that material errors have occurred when the restatement is prepared and filed. Essentially the restatement creates a road map for the agency.
In the Commission’s most recent cases in this area the firm was required to restate its financial statements because of material errors with respect to revenue recognition. Subsequently, the Commission filed a series of cases involving those involved in the action.
In the Matter of Synchronoss Technologies, Inc., Adm. Proc. File No. 3-20883 (June 7, 2022) is the Order naming the company as a respondent. It allege that the firm improperly recognized revenue. Key transactions that were part of the restatement in 2015 and 2016 and included: those for which there was not persuasive evidence of the arrangement; acquisition/divestitures in which the firm recognized revenue on license agreements; license/hosting transactions in which the firm converted prior multi-term software-as-a-service agreement into perpetual license agreements; and improperly recognized revenue upfront rather that ratably over the term of the agreements. It alleges violations of Exchange Act Sections 10(b), 13(a), 13(b)(2)(A), 13(b)(2)(B), 13(b)-5. The proceedings were resolved with the entry of a cease-and-desist order based on those the Exchange Act Sections cited in the Order and the payment of a $12.5 million penalty.
The only contested case in the group is SEC v. Rosenberger, Civil Action No. 22 Civ. 4736 (S.D.N.Y. June 7, 2022). The complaint names as defendants Karen Resnberger, the CFO Synchronoss Technologies, Inc. and Joanna Lanni, the controller of the firm. The action centers on essentially the same facts as the Order discussed above. Defendant Rosenberger tried to cover up the misconduct by falsifying the company books. Defendant Lanni contributed to the wrongful conduct by furnishing a memorandum used to materially mislead the auditors.
It alleges violations of the same Exchange Act Sections cited above and, in addition SOX Section 304. The case is pending.
Actions filed against former company employees that are settled are: In the Matter of Clayton “Charlie” Thomas, Adm. Proc. File No. 3-20884 (June 7, 2022)(Action charged Mr. Thomas, the VP of analytics at the firm; alleges violations of the same Sections as above excluding the Section SOX; settled with the entry of a cease-and-desist order and the payment of a penalty of $90,000); In the Matter of Marc Bandini, Adm. Proc. File No. 3-20885 (June 7, 2022)(action against the former Senior Director of Communications and Media; settled with a cease-and-desist order based on Exchange Act Sections 10(b), 13(b)-5, 13(a) and 13(b)(2)(A) and the payment of a $15,000 penalty); In the Matter of Daniel Ives, Adm. Proc. File No. 3-20886 (June 7, 2022)(proceeding naming the former EVP of investor relations; settled with the entry of a cease-and-desist order based on Exchange Act Section 13(b)(5) and the payment $15,000); In the Matter of John Murdock, Adm. Proc. File No. 3-20887 (June 7, 2022)(Action against the Senior Director of Procurement and Business Operations; settled with a cease-and-desist based on Exchange Act Sections 13(a) and 13(b)(2)(A) and the payment of a $15,000 penalty); In the Matter of Stephen G. Waldis, Adm. Proc. File No. 3-20999 (June 7, 2022); settled as to the former CEO of the firm with a cease-and-desist order based on SOX Section 304 since Respondent had not reimbursed the company); In the Matter of Ronald Prague, Esq., Adm. Proc. File No. 3-20889 (June 7, 2022)(proceeding against the GC; alleges violations of Exchange Act Sections 13(a) and13(b)(2)(A) and the payment of a $25,000 penalty).