SEC Charges Company for Material Misrepresentations

The SEC charged a company with disclosure violations and misrepresentations on SEC reporting forms related to a merger with a special purpose acquisition company ("SPAC"). The misrepresentations concerned estimated warranty liability resulting from insufficient internal accounting controls.

In its Order, the SEC stated that the window manufacturer disclosed an estimated warranty liability ranging of $22 million and $25 million, based on projected costs for replacing defective windows. After the company's investigation, the warranty liability was determined to be $48 million and $53 million, respectively. The SEC found that the difference was due to a failure to incorporate certain costs associated with its warranty liability under US GAAP standards. The SEC found that "during the period that its warranty liability was materially misstated, the company obtained money or property through its offer and sale of $440 million in shares pursuant to a private investment in public equity payment and through payments it received from the issuance of common stock upon the exercise of options."

As a result, the SEC found that the manufacturer violated Securities Act Sections 17(a)(2) and (3) ("Fraudulent Interstate Transactions"), Exchange Act Sections 13(a), 13(b)(2)(A), 13(b)(2)(B) ("Periodical and other reports") and 14(a) ("Proxies"), and Exchange Act Rules 12b-20 ("Additional information"), 13a-11 ("Current reports on Form 8-K"), 13a-13 ("Quarterly reports on Form 10-Q"), 13a-15(a) ("Controls and procedures") and 14a-9 ("False or misleading statements").

In consideration of the manufacturer’s investigation and self-disclosure and subsequent restatements, the SEC did not impose a civil monetary penalty. The SEC ordered the firm to cease and desist from further regulatory violations.