As the 2023 federal fiscal year closed out at the end of September, the Securities and Exchange Commission (SEC) announced five noteworthy accounting and disclosure cases by gainst nonfinancial businesses and executives, CFO reported.

In one case, the SEC charged New York-based telecommunications company Pareteum’s former CFO, Edward O’Donnell, and its former chief commercial officer Victor Bozzo, with engaging in fraudulent revenue recognition practices. The SEC charged that from at least 2018 through mid-2019, Bozzo, O’Donnell and the company’s former controller, Stanley Stefanski “engaged in a fraudulent scheme to recognize revenue from Pareteum customers’ nonbinding purchase orders for SIM card services, despite knowing that the customers had not committed to paying for the services unless they were able to sell the services to downstream consumers.”

In a parallel action, the U.S. Attorney’s Office for the Southern District of New York announced criminal charges against Bozzo and O’Donnell. According to U.S. Attorney for the Southern District of New York Damian Williams, the two inflated the company’s revenue to make it appear more profitable, and “took steps to mislead the company’s auditor,” 

The SEC also charged GTT Communications, Inc. with failing to disclose material information about unsupported adjustments, but it declined to impose a civil penalty because of company’s prompt self-report, extensive remediation and substantial cooperation.

“At a time when it was still evaluating the nature and impact of the accounting issues it had identified, GTT self-reported to the SEC and followed up by providing substantial cooperation throughout our investigation while taking significant steps to address the shortcomings in its processes,” said Mark Cave, associate director of the SEC’s Division of Enforcement. “The SEC recognized GTT’s timely self-report, cooperation, and remediation in its decision not to impose a monetary penalty on the company.”

In addition, the SEC charged Hyzon Motors and two of its executives with misleading investors about its products’ status and sales before and after its special purpose acquisition company (SPAC) transaction in 2021. Hyzon allegedly misrepresented the status of its business dealings with potential customers and suppliers to create the false appearance that significant sales transactions were imminent, falsely stated that it had delivered its first hydrogen fuel cell electric vehicles (FCEVs) in July 2021, and posted a misleading video of the vehicle purportedly running on hydrogen, when the vehicle was not equipped to do so.

The company; Craig M. Knight, its former CEO; and Max C.B. Holthausen, the former managing director of its European subsidiary, each consented to permanent injunctions and to pay $25 million, $100,000, and $200,000, respectively, in civil penalties. Knight and Holthausen also agreed to prohibitions from serving as officers or directors of a publicly traded company for a period of five and ten years, respectively. The settlements are subject to court approval.

In another alternative energy vehicle case, XL Fleet was charged with misleading investors about revenue projections that topped $1 billion within three years of going public. The company XL Fleet claimed in pre-SPAC filings it had a $220 million, 12-month sales pipeline.

The SEC’s order found that the sales pipeline was misleading because the numbers were derived from a customer relationship management system for the sale team, which was “not designed to make revenue projections.” The revenue projection, said the SEC, included “sales to potential customers with whom XL Fleet had little or no contact” and “stale sales opportunities that had not been updated within the company’s systems.”

Finally, the SEC charged Newell Brands, the maker of Sharpie markers and Graco baby products, and its former CEO, Michael Polk, with misleading investors about Newell’s core sales growth, a non-GAAP (Generally Accepted Accounting Principles) financial measure. The SEC found that “Newell’s former CEO issued an instruction to ‘scrub’ the company’s accruals after he learned that the company was projecting a ‘massive’ and ‘disappointing’ miss for the quarter” [in 2016 and 2017],” said Cave. “Senior executives of public companies hold positions of trust, and they risk abusing the duties attendant to their offices when they reach into a company’s accounting control processes as a way of making up for performance shortfalls.”