Publicly Traded Company Settles SEC Charges for Disclosure Failures Regarding Reported Profit Growth

A publicly traded company settled SEC charges for failing to disclose the nature of its reported profit growth and worsening business trends.

According to the Order, the company's power sector business profits ($1.4 billion in 2016 and $1.1 billion in the first three quarters of 2017) resulted from reductions in cost estimates to complete service agreements. The SEC alleged that the company failed to explain in its disclosures that the reductions in cost estimates were the cause of earnings increases. Further, the SEC stated that the company adopted a "deferred monetization" business that immediately increased its reportable industrial cash collections at the expense of future cashflows. The SEC found that the company failed to disclose this reliance on deferred monetization.

As to the company's insurance sector business, the SEC stated that the company reinsured a "substantial number" of underpriced long-term care insurance policies. The SEC found that, as the company's insurance business policy costs were rising, the company lowered projected claims costs and failed to disclose the potential losses.

The SEC charged the company with violating Sections 17(a)(2) and 17(a)(3) of the Securities Act; Section 13(a) of the Exchange Act and Rules 12b-20 ("Additional Information"), 13a-1 ("Requirements of Annual Reports"), 13a-11 ("Current Reports on Form 8-K"), 13a-13 ("Quarterly Reports on Form 10-Q"), 13a-15(a) and Rule 100(b) of Regulation G thereunder; and Section 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act.

To settle the charges, the company agreed to (i) cease and desist, (ii) a $200 million civil money penalty and (iii) to report to the SEC for one year regarding certain accounting and disclosure controls in its power and insurance businesses.