China-Based Issuer Settles SEC Charges for Inaccurate Reports

A China-based issuer settled SEC charges for violating the antifraud provisions of the Securities Exchange Act and certain reporting, recordkeeping and internal control requirements.

According to the Order, the SEC determined that the firm, a provider of cloud-based communications products and services in China which holds American Depository Shares traded on the NYSE, committed fraud by prematurely recognizing revenue on its service contracts. The SEC found that two of the firm's senior managers, under pressure to meet strict quarterly sales targets, directed employees to improperly recognize revenue on numerous contracts. As a result of this misconduct and other accounting errors, the firm overstated its unaudited financial results for the second and third quarters of 2021, as well as its announced revenue guidance for the fourth quarter of 2021.

As a result, the SEC found the firm violated, among other provisions, Exchange Act Section 13(a) ("Reports of Issuers of Securities Registered Pursuant to Section 12 Annual Reports") and Section 13(b)(2)(A) and 13(b(2)B) ("Maintenance of Records and Preparation of Required Reports").

The SEC censored the firm, but did not impose civil monetary penalties because the issuer initiated an internal investigation, self-reported the violations and cooperated in the investigation by summarizing interviews of witnesses in China and translating key documents from Chinese. The SEC also stated that the issuer took corrective actions, including terminating or disciplining involved personnel, clawing back pay, reorganizing implicated departments, enhancing accounting controls, and hiring finance and accounting staff proficient in U.S. Generally Accepted Accounting Principles.