The SEC just announced that a Houston technology solutions company agreed to pay a $2.5 million penalty to settle charges that it overstated profits, as well as that two former executives of the company agreed to settle charges of causing the violations.
Pressure to Perform Results In Fraud
The SEC’s order stated that after being pressured to improve the financial performance of the energy infrastructure segment of FMC Technologies, the segment’s controller Jeffrey Favret and business unit controller Steven Croft improperly reduced the value of a liability the company recorded for paid employee time off. The SEC alleged the improper adjustments overstated the company’s pre-tax operating profits by $800,000 and enabled the segment to meet its internal company target. The SEC charged that Favret and Croft also corrected a $730,000 error recorded in 2012 that increased the segment’s operating results, but later signed management representation letters attesting there had been no out-of-period adjustments larger than $250,000 for that period.
The SEC’s order also stated that Croft failed to comply with internal accounting controls when directing his business unit switch to a new accounting system without taking reasonable steps to ensure that errors would not occur. Errors did occur which served to overstate the segment’s results in two quarterly periods.
Findings Unchallenged as Penalties Levied
FMC Technologies, Favret, and Croft consented to the SEC’s order without admitting or denying the findings. In addition to the company penalty, Favret agreed to pay a $30,000 penalty and Croft agreed to pay a $10,000 penalty. Favret and Croft, who are no longer with FMC Technologies, also agreed to be suspended from appearing or practicing before the SEC as accountants. The order permits them to apply for reinstatement after two years.
The SEC’s press release can be found at the following link:
Jeff Petersen is an attorney licensed in California and Illinois representing clients in a wide variety of SEC investigations and SEC enforcement actions. He can be reached in California at 858.792.3666 and in Illinois at 312.450.4584.