IT Company and Former CFO Settle Charges for Disclosure Failures

An IT company and its former CFO settled SEC charges for failing to disclose (i) accrued liability related to a dissenting shareholder appraisal action, and (ii) two related party transactions.

According to the Order, the SEC found that while the company disclosed the existence of the dissenting shareholder appraisal action related to a merger, it failed to accrue this potential liability. The company had argued that it could not provide the numbers because the precise figure of the appraisal action was uncertain, but an outside auditor determined that the company should have accrued an estimate of the liability pending the result.

Additionally, the SEC said that the company failed to disclose two related party transactions between the company and an entity in which the former CFO and other members of the company's leadership held indirect financial interests. The SEC said the former CFO was responsible for this failure.

As a result, the SEC determined that there were violations of Exchange Act Section 13(a), Section 13(b)(2)(A) and SEA Section 13(b)(2)(B) (Periodical and other reports"). In addition, the SEC found violations of SEA Rule 12b-20 ("Additional information"), SEA Rule 13a-1 ("Requirements of annual reports"), SEA Rule 13a-13 ("Quarterly reports on Form 10-Q"), and SEA Rule 13a-15(a) ("Controls and procedures").

To settle the charges, the company agreed to (i) cease and desist and (ii) a civil monetary penalty of $175,000. The former CFO agreed to (i) cease and desist and (ii) a civil monetary penalty of $10,000.