SEC Charges Tech Company for Misleading Investors About Revenue

A tech company settled SEC charges for misleading investors about its order backlog management practices and slowing performance relative to its projections.

In the Order, the SEC found that in quarterly and annual reports, as well as during earnings calls and releases, the company provided a backlog metric that included orders withheld from booking for discretionary reasons. The SEC found that the company intentionally modified the timing of its revenue recognition by placing discretionary holds on selected sales orders. This practice delayed the delivery of the product or service until the quarter where the company wanted to recognize the revenue, sometimes delaying services across multiple quarters.

The SEC found that the company omitted material information regarding the extent to which it controlled its quarter-end total and license backlog numbers through its use of discretionary holds, and the extent to which it used backlogging to control the timing of revenue recognition generally. The SEC said that the company also told investors it was meeting revenue and growth expectations, when the actual revenue numbers were skewed due to the backlogged sales. The SEC stated that the company was publishing the skewed revenue numbers while it continued to sell company stock as part of employee stock purchase plans and other compensation.

As a result, the SEC determined that the company violated SA Sections 17(a)(2)-(3) ("Fraudulent interstate transactions"), SEA Section 13(a) ("Periodical and other reports"), SEA Rule 12b-20 ("Additional information"), Rule 13a-1 ("Requirements of annual reports"), Rule 13a-11 ("Current reports on Form 8-K") and Rule 13a-13 ("Quarterly reports on Form 10-Q").

To settle the charges, the company agreed to (i) cease and desist and (ii) pay a civil monetary penalty of $8,000,000.