SEC Charges Biotech Company and Executives for Misstating Revenue

The SEC charged a biotech company and three of its former top executives with artificially inflating the firm's reported revenue. Pending court approval, the company agreed to pay $1.5 million to settle the charges.

According to the Complaint filed in the U.S. District Court for the Southern District of New York, the executives conducted an accounting fraud scheme from the first quarter of 2013 to the third quarter of 2017. Allegedly, the executives recognized revenue at the time goods were shipped to five of its largest distributors. The revenue should not have been recognized at that time, according to the SEC, because the executives and distributors were also engaged in a "secret side arrangement" which allowed the distributors to return the product or condition their payment obligations on sales to customers. Additionally, the SEC found that the executives attempted to cover up the misconduct by lying to and withholding information from the company's audit committee, outside auditors, outside counsel, and the SEC.

The SEC is seeking, among other things, (i) an injunction, (ii) to permanently bar the executives from being an officer or director of any public company, (iii) to order the defendants to disgorge all illicit gains, (iv) civil money penalties, and (v) that two of the executives return all bonuses, inventive-based and equity-based compensation.

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