Archive

October 5, 2015

Cayman Islands-based Home Loan Services Solutions Ltd.(HLSS) will pay a $1.5 million penalty to settle SEC charges of making material misstatements about its handling of related party transactions and the value of its primary asset.  According to the SEC’s order instituting a settled administrative proceeding, HLSS misstated its handling of transactions with related parties.  For example, from 2012 to 2014, HLSS stated that to avoid potential conflicts of interest, it required its Chairman (also the Chairman of Ocwen Financial Corp.) to recuse himself from transactions with Ocwen.  However, HLSS had no written policies on recusals for related-party transactions and, in fact, HLSS’ Chairman approved many transactions with Ocwen.  In addition, according to the SEC’s order, HLSS misstated its net income in 2012, 2013, and the first quarter of 2014, because the methodology used to value its primary asset – billions of dollars of mortgage servicing rights purchased from Ocwen – did not conform to generally accepted accounting principles.  SEC

October 1, 2015

Grant Thornton India LLP and Grant Thornton Audit Pty Ltd will pay $365,085 to settle charges of violating auditor independence rules.  According to the SEC’s order, two Grant Thornton Mauritius partners served on the boards of subsidiaries of Grant Thornton audit clients and performed non-audit services prohibited under the SEC’s auditor independence rules.  SEC

September 28, 2015

Trinity Capital Corporation and its wholly-owned subsidiary Los Alamos National Bank will pay $1.5 million to settle accounting fraud charges.  An SEC investigation found that Trinity materially misstated its provision for loan losses and its allowance for loan and lease losses in its SEC filings between 2010 and 2012.  In 2011, Trinity understated its net loss available to common shareholders by $30.5 million, reporting income of $4.9 million instead of a $25.6 million loss.  SEC

September 25, 2015

The SEC charged four former SMF Energy Corp. officers with financial fraud by vastly inflating SMF Energy’s revenues through a fraudulent billing scheme.  The SEC alleges that SMF Energy overbilled certain mobile fueling customers, including the U.S. Postal Service, by charging for fuel that was not delivered and adding surcharges that the customers’ contracts did not permit.  As a result, the SEC alleges that SMF Energy materially overstated its revenues, profit margins, shareholders’ equity and net income.  According to the SEC’s complaint, the overbilling began in 2004 as a minor contributor to SMF Energy’s financial performance but later made the difference between the company being profitable and posting net losses. SEC

September 22, 2015

Retailer Stein Mart Inc. will pay an $800,000 penalty to settle charges of materially misstating its pre-tax income due to improper valuation of inventory subject to price discounts.  An SEC investigation found that when Stein Mart offered its merchandise to customers at reduced prices, the value of the inventory subject to the markdowns was reduced at the time the item was sold rather than immediately at the time the markdown was applied.  As a result, Stein Mart materially misstated its pre-tax income in certain quarterly filings with the SEC, including an overstatement of almost 30 percent in the first quarter of 2012.  SEC

September 9, 2015

The SEC charged national audit firm BDO USA and five of its partners with dismissing red flags and issuing false and misleading unqualified audit opinions about the financial statements of staffing services company General Employment Enterprises, after failing to obtain reasonable and coherent explanations about why $2.3 million (approximately half of the company’s assets) had gone missing.  In a related action, the SEC filed fraud charges against Stephen Pence, then General Employment Enterprises’ chairman of the board and majority shareholder, and a former U.S. Attorney and lieutenant government of Kentucky.  BDO agreed to admit wrongdoing and pay disgorgement and penalties of $2.1 million.  BDO’s five partners also settled the charges brought against them and agreed to pay $75,000 in penalties collectively.  The SEC’s litigation with Stephen Pence continues.  SEC

September 8, 2015

The SEC charged former CEO and CFO of now-bankrupt video management company KIT Digital with falsifying financial statements to make the company appear more profitable than it was.  The defendants’ variety of schemes, as alleged by the SEC, included an off-the-books slush fund used to generate payments back to KIT to create the false appearance that the company was being paid for its products.  The U.S. Attorney’s Office for the Southern District of New York brought parallel criminal charges against both men.  SEC

September 8, 2015

Financial publishing company Bankrate Inc. agreed to pay a $15 million penalty to settle accounting fraud charges.  The SEC alleged that Bankrate’s then-CFO, Director of Accounting, and Vice President of Finance, engaged in a scheme to fabricate revenues and avoid booking certain expenses to meet analyst expectations for its adjusted earnings before interest, taxes, depreciation, and amortization, a key financial metric known as “EBITDA.”  The SEC charged the three former executives as well.  SEC

September 8, 2015

Sports supplement and nutrition company MusclePharm agreed to pay a $700,000 penalty for committing a series of accounting and disclosure violations, including the omission or understatement of nearly $500,000 worth of perks bestowed upon company executives.  Three current or former executives and the company’s former audit committee chair also agreed to pay penalties of $210,000 collectively to settle related charges brought against them.  SEC

August 6, 2015

The SEC announced charges against Knoxville-based Miller Energy Resources Inc. (Miller), Miller’s former CFO, Miller’s current COO, and the audit team leader at Miller’s former independent auditor.  The SEC alleges that defendants overstated the value of Miller oil and gas properties in Alaska by more than $400 million.  Allegedly, this inflated valuation turned the penny-stock company into one that eventually listed on the NYSE at a high of $9 per share.  SEC