Publicly Traded Company Settles SEC Charges for Accounting Violations

A publicly traded Atlanta-based pest control company settled SEC charges for multiple accounting violations.

According to the SEC order, the company made unsupported reductions to their accounting reserves in order to round up reported earnings per share ("EPS") to the next penny. The SEC stated that the improper accounting adjustment positioned the company to publicly report EPS in line with research analysts’ estimates. According to the SEC, the CFO was aware that the company's earnings results were short of consensus EPS estimates when he directed reductions to the reserve accounts. Also, the SEC found that the CFO directed the accounting adjustments without (i) conducting an analysis under GAAP and (ii) documenting the basis for those accounting adjustments.

As a result, the SEC found that:

• both the company and its former CFO violated Securities Act Sections 17(a)(2) and (3) on fraudulent interstate transactions;
• the company was also found in violation of Exchange Act Sections 13(a), 13(b)(2)(A) and 13(b)(2)(B), and Exchange Act Rules 12b-20, 13a-11, 13a-13 and 13a-15(a); and
• the company's former CFO violated Exchange Act Section 13(b)(5) and Rule 13b2-1 thereunder.

To settle the charges, the firm and its former CFO agreed to (i) cease and desist from future violations of the charged provisions and (ii) pay civil penalties of $8 million and $100,000, respectively.

SEC Division of Enforcement Director Gurbir S. Grewal said the action was the result of the SEC staff's increasing "sophistication with data."