Archive

March 10, 2016

Texas-based oil company Magnum Hunter Resources Corporation as well as two former senior officers and two consultants will pay $290,000 collectively to settle charges of deficient evaluation of, and failure to maintain control over, Magnum Hunter’s internal controls over financial reporting (ICFR) between December 2011 and September 2013.  ICFR refers to a company’s process for providing reasonable assurance to the public regarding the reliability of its financial reporting.  SEC rules require company management to evaluate and annually report on the effectiveness of ICFR, including disclosing any identified material weaknesses that create a reasonable possibility that the company will not timely prevent or detect a material misstatement of its financial statements.  According to the SEC’s orders, Magnum Hunter enjoyed rapid growth in 2010 and significant acquisitions in 2010 and 2011 which strained its accounting resources.  Despite assessments that there was inadequate control over the financial reporting process, a material weakness was not reported.  SEC

March 9, 2016

The SEC charged California’s largest agricultural water district, the Westlands Water District, as well as its general manager and former assistant general manager, with misleading investors about Westlands’ financial condition in connection with a $77 million bond offering.  The SEC’s order instituting settled administrative proceedings alleged that Westlands had agreed to maintain a 1.25 debt service coverage ratio.  But when drought conditions reduced the water supply, preventing it from generating enough revenue to maintain the ratio, Westlands used extraordinary accounting transactions to reclassify funds from reserve accounts to record additional revenue.  When the Westlands issued the $77 million bond offering in 2012 it represented to investors that it met or exceeded the 1.25 ratio for each of the prior five years.  Absent the reclassifications and adjustments, Westlands’ ratio for 2010 would have been .11.  Westlands and the charged managers agreed to pay $195,000 collectively to settle the SEC’s charges.  SEC

February 9, 2015

St. Louis-based agribusiness Monsanto Company will pay an $80 million penalty to settle charges that it violated accounting rules and misstated company earnings with respect to its flagship product Roundup.  In addition, three accounting and sales executives will pay $135,000 collectively to settle charges against them.  An SEC investigation found that Monsanto had insufficient internal controls to properly account for millions of dollars in rebates offered to retailers and distributors of Roundup after generic competition had undercut Monsanto’s prices and resulted in a significant loss of market share for the company.  Monsanto booked substantial revenue resulting from sales incentivized by the rebate programs but failed to recognize all of the related program costs at the same time.  Therefore, Monsanto materially misstated its consolidated earnings in corporate filings during a three-year period.   Monsanto’s CEO and former CFO reimbursed the company $3,165,852 and $728,843 respectively, for cash bonuses and certain stock awards received during the period when the company committed the accounting violations.  SEC

January 20, 2016

Ocwen Financial Corp. will pay $2 million to settle charges that it misstated financial results by using a flawed, undisclosed methodology to value complex mortgage assets.  Ocwen inaccurately disclosed to investors that it independently valued these assets at fair market value according to U.S. Generally Accepted Accounting Principles. In fact, Ocwen merely used, and failed to review, the valuation performed by a related party to which it sold the rights to service certain mortgages.  In addition, the SEC found that Ocwen’s internal controls failed to prevent conflicts of interest involving Ocwen’s executive chairman who played a dual role in many related party transactions.  As a result, Ocwen’s executive chairman was able to approve transactions from both sides, including a $75 million bridge loan to Ocwen from a company where he also served as chairman of the board.  SEC

January 13, 2016

Nine of eleven high-ranking executives and board members of Superior Bank and its holding company have settled charged by the SEC based on their alleged involvement in various schemes designed to conceal the extent of loan losses experienced as the bank was faltering in the wake of the financial crisis.  The defendants propped up Superior’s financial condition through straw borrowers, bogus appraisals, and insider deals, allowing the bank to avoid impairment and the reporting of ever-increasing allowances for loan and lease losses.  As a result, Superior overstated its net income in public filings by 99 percent for 2009 and 50 percent for 2010.  The settling defendants will pay at least $2.8 million collectively and are all permanently barred from serving as officers or directors of a public company.  SEC

December 10, 2015

Through orders instituting settled administrative proceedings, the SEC suspended five accountants and two associated auditing firms from practicing or appearing before the SEC.  The SEC’s orders found that the accountants and firms at various times performed deficient audits of public companies, jeopardized the independence of other audits, falsified and backdated audit documents, and violated other key rules designed to preserve the integrity of the financial reporting system. SEC

December 2, 2015

National audit firm Grant Thorton will pay $4.5 million to settle charges it ignored red flags and fraud risks while conducting deficient audits for publicly-traded Assisted Living Concepts (a senior housing provider) and Broadwind Energy (an alternative energy company) — both of which themselves faced SEC enforcement actions for improper accounting and other violations.  Grant Thorton’s deficient audits spanned from 2009 to 2011.  The SEC’s investigation found that Grant Thorton repeatedly violated professional standards and their inaction allowed the companies to make numerous false and misleading public filings.  SEC

October 27, 2015

The St. Joe Company, a Florida-based real estate developer and landowner, its former top executives, and two former accounting department directors, agreed to pay, collectively, $3.725 million in penalties and disgorgement to settle SEC claims of improperly accounting for the declining value of residential real estate developments during the financial crisis.  According to the SEC’s order instituting settled administrative proceedings, the respondents repeatedly failed to properly apply generally accepted accounting practices in testing St. Joe’s real estate developments for impairment, resulting in the failure to take required write-downs on properties hit hard by the financial crisis.  SEC

October 26, 2015

Credit rating agency DRBS Inc. agreed to pay almost $6 million to settle SEC charges of misrepresenting its surveillance methodology for ratings of certain complex financial instruments during a three-year period.  An SEC investigation found that the firm misrepresented that it would monitor on a monthly basis each of its outstanding ratings of U.S. residential mortgage-backed securities (RMBS) and re-securitized real estate mortgage investment conduits (Re-REMICs) by conducting a three-step quantitative analysis and subjecting each rating to review by a surveillance committee.  In fact, the review was not conducted on a monthly basis and when the committee convened it reviewed only a limited subset of ratings.  DRBS did not have adequate staffing and technological resources to conduct the surveillance promised by its surveillance methodology.  SEC

October 6, 2015

The SEC charged two former top executives at OCZ Technology Group Inc., a now-bankrupt seller of computer memory storage and power supply devices, with accounting failures.  The SEC’s complaint alleges that OCZ’s former CEO engaged in a scheme to materially inflate OCZ’s revenues and gross margins from 2010 to 2012, by, for instance, mischaracterizing sales discounts as marketing expenses, channel-stuffing OCZ’s largest customer, and concealing large product returns.  OCZ’s former CFO agreed to pay $130,000 in disgorgement and to be barred from acting as an officer or director of a public company  to settle the SEC’s charges against him of accounting, disclosure, and internal accounting control failures.  SEC