Among recent enforcement actions by the SEC were a settlement with a technology company charged with bribery; charges against a former Deutsche Bank analyst for certifying a stock rating when his opinion on the stock was different from the rating; and charges against a biopesticide company and a former executive for accounting fraud.
Former Deutsche Bank Analyst Fined Over Rating Certification
The SEC charged former Deutsche Bank research analyst Charles Grom with certifying a stock rating when his own beliefs about the stock did not agree with the rating he gave it.
According to the agency, Grom certified that his March 29, 2012, research report about discount retailer Big Lots accurately reflected his own beliefs about the company and its securities. But his private communications with Deutsche Bank research and sales personnel indicated that the only reason he didn’t downgrade Big Lots from a Buy recommendation in his report was his desire to keep his relationship with Big Lots management.
Grom and Deutsche Bank hosted Big Lots executives at a nondeal roadshow on March 28, 2012, when Grom became concerned by what he believed to be cautious comments by the Big Lots executives. After the roadshow ended, he communicated with a number of hedge fund clients about Big Lots. Four of those funds subsequently sold their entire positions in Big Lots stock.
The next day, Grom issued a research report on Big Lots, but maintained a Buy rating he had previously given the company. He also signed an analyst certification included at the end of the report stating, “The views expressed in this report accurately reflect the personal views of the undersigned lead analyst(s) about the subject issuer and the securities of the issuer.”
During an internal conference call with Deutsche Bank’s research and sales personnel only hours after the publication of that report, Grom said, among other things, that he had maintained a Buy rating on Big Lots because “we just had them in town so it’s not kosher to downgrade on the heels of something like that.”
On April 24, 2012, during another conference call with Deutsche Bank research and sales personnel, Grom discussed disappointing first quarter sales figures at Big Lots and stated, “I think the writing was on the wall [that] we were getting concerned about it, but I was trying to maintain, you know, my relationship with them. So, that’s why we didn’t downgrade it a couple of weeks back.”
Grom has neither admitted nor denied the SEC’s findings, but has agreed to settle the charges by paying a $100,000 penalty, and he will be suspended from the securities industry for a year.
The SEC’s investigation is continuing.
SEC Fines Tech Company, Subsidiaries for Bribery
Massachusetts-based technology company PTC Inc. and its Chinese subsidiaries have agreed to pay more than $28 million to settle parallel civil and criminal actions involving violations of the Foreign Corrupt Practices Act (FCPA).
According to the agency, an investigation found that from at least 2006 to 2011, two PTC China-based subsidiaries provided improper travel, gifts and entertainment adding up to almost $1.5 million to Chinese government officials employed by state-owned entities that were PTC customers.
As a result of sales contracts with state-owned entities whose officials had gotten the payments, PTC made approximately $11.8 million in profits. The Chinese officials were compensated directly and through third-party agents for sightseeing and tourist activities tacked onto visits to a PTC facility, usually the corporate headquarters in Massachusetts.
After a single day of business activities, the sightseeing trips usually arranged by the third-party agents had no business purpose and went on to take Chinese officials to such destinations as New York, Las Vegas, San Diego, Los Angeles and Honolulu, where officials were indulged in guided tours, golfing and other leisure activities.
Employees of PTC’s Chinese subsidiaries also provided improper gifts and entertainment to Chinese government officials, including small electronics such as cell phones, iPods, GPS systems, gift cards, wine and clothing. Payment for all these gifts and activities were disguised as legitimate commissions or business expenses in company books and records.
PTC agreed to pay $11.858 million in disgorgement and $1.764 million in prejudgment interest to settle the SEC’s charges, and its two China subsidiaries agreed to pay a $14.54 million fine in a nonprosecution agreement announced by the U.S. Department of Justice.
The SEC also announced its first deferred prosecution agreement (DPA) with an individual in an FCPA case. FCPA charges will be deferred for three years against Yu Kai Yuan, a former employee at one of PTC’s Chinese subsidiaries, as a result of significant cooperation he has provided during the SEC’s investigation. Biopesticide Company, Former Exec Charged With Accounting Fraud
Biopesticide company Marrone Bio Innovations and a former executive, Hector Absi Jr., have been charged by the SEC with inflating financial results to meet projections it would double revenues in its first year as a public company.
According to the agency, Absi, the company’s former chief operating officer, hid a number of customer sales concessions from Marrone Bio’s finance personnel and independent auditor; that led the Davis, California-based company to improperly recognize revenue on sales.
In November 2015, Marrone Bio restated its results for fiscal 2013 and the first half of fiscal 2014, reversing approximately $2 million of previously reported revenue.
That was necessary because Absi had previously inflated Marrone Bio’s revenues by offering distributors “inventory protection,” a concession that allowed distributors to return unsold product. He also inflated Marrone Bio’s revenue by directing his subordinates to obtain false sales and shipping documents and intentionally ship the wrong product to book sales.
In addition, Absi took advantage of Marrone Bio’s expense reporting system to pay for personal items, including vacations, home furnishings and professionally installed Christmas lights for his home. He faked his bank and credit card statements to make it look as if he had incurred the expenses for legitimate business purposes.
Altogether, his schemes brought him more than $350,000 in bonuses, stock sale proceeds and illegitimate expense reimbursements, the ESC said. He resigned in August 2014, shortly before the alleged fraud came to light and the company’s stock price plunged more than 44%.
In a parallel action, the U.S Attorney’s Office for the Eastern District of California has also announced criminal charges against Absi.
The SEC also instituted a settled administrative proceeding against Marrone Bio’s former customer relations manager Julieta Favela Barcenas for violations of the books and records provisions of the federal securities laws. Favela entered into a cooperation agreement to assist in the SEC’s investigation and ongoing litigation against Absi.
Marrone Bio agreed to pay a $1.75 million penalty to settle the SEC’s charges. In addition, CEO Pamela Marrone has reimbursed the company $15,234 and former Chief Financial Officer Donald Glidewell will reimburse the company $11,789 for incentive-based compensation they received following the filing of Marrone Bio’s misstated financial statements. They weren’t charged with any misconduct.
— Check out SEC Enforcement: Fake Broker Charged With Selling Phony Stock to Pay Gambling Debt on ThinkAdvisor.