SEC Whistleblower Spotlight: Financial Reporting and Accounting Fraud

March 2, 2022

In 2021, the SEC Whistleblower Program awarded over $560 million to whistleblowers who provided insider information about securities law violations primarily through the use of an SEC whistleblower attorney. Pursuant to the Dodd-Frank Whistleblower Provision, an SEC whistleblower can receive between 10% and 30% of any monetary sanctions collected by the SEC and other government agencies.

One enforcement area where whistleblowers regularly play an important role is in the detection of accounting and financial reporting fraud. U.S. securities laws require publicly-traded companies and certain private companies to file annual and quarterly reports with the SEC containing audited financial information. Even outside of public SEC filings, private companies must circulate financial reports to their shareholders. If material financial information in any of these reports is falsified, manipulated, or omitted, the company has committed accounting fraud. 

Accounting fraud remains a top enforcement priority for the SEC. In connection with the Monsanto accounting scandal in 2016 which resulted in a $22 million whistleblower award, then-SEC Chair Mary Jo White stated: “Financial reporting and disclosure cases continue to be a high priority for the Commission…. Corporations must be truthful in their earnings releases to investors and have sufficient internal accounting controls in place to prevent misleading statements.”

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Companies have become increasingly sophisticated in the ways they “cook the books” to evade detection by the SEC; this is why the SEC often turns to honest company insiders who courageously report accounting fraud. Some recent accounting fraud cases brought by the SEC:

  • SEC v. Palleschi and Lethem (2021): The SEC charged these two executives of FTE Networks, Inc., with “inventing approximately $12.5 million of revenue and related accounts receivable from purportedly completed construction projects that had not yet been billed and from contracts for projects that purportedly had been completed and billed but not yet paid.”
  • SEC v. SAExploration Holdings, Inc., et al (2020): According to this complaint, SAE inflated its revenues by over $100 million by recognizing “sales” of seismic-exploration data to ASV, a purportedly unrelated entity that was in fact controlled by two of SAE’s executives. This allowed SAE to “artificially and materially inflat[e] SAE’s reported revenue by making it appear that ASV was a significant source of independent revenue.”
  • SEC v. Revolution Lighting Technologies Inc. (2020): The SEC charged Revolution Lighting Technologies Inc. with prematurely recording revenues from anticipated future sales and uncompleted sales, thereby inflating the company’s revenues over a four-year period. The CFO concealed these transactions by, among other things, backdating documents.
  • SEC v. MiMedx Group, Inc., et al (2019): The SEC charged three top executives of MiMedx Group with prematurely recognizing revenue at the time they shipped products to their distributors, even though they were not paid until the products were resold. The scheme falsely inflated company revenue by millions of dollars for several years.

If you have significant insider information about accounting or financial-disclosure fraud at your company, contact the SEC whistleblower lawyers at Brown, LLC, for a free, confidential consultation at 877-561-0000 or Free consultations can be arranged after-hours, on weekends, and in-person at our office near downtown Manhattan.