Allegations of FCPA Violations, Inflation Schemes, and Improper Audits Lead to SEC Fraud Cases

To settle an Securities and Exchange Commission case, Maxwell Technologies, Inc. and one of its former sales executives and officers, Van Andrews, have agreed to pay $2.8M and $50K in penalties, respectively, but without denying or admitting to the regulator’s allegations. They are not, however, admitting to or denying the SEC’s finding that they were involved a fraudulent revenue scam that inflated the energy storage company’s reported financial results.

The regulator’s order said that the company acknowledged revenue from ultracapacitor sales “prematurely” so as to better fulfill the expectations of analysts. Andrews is accused of inflating revenues through secret customer deals and by doctoring records to hide the scam from outside auditors, as well as company finance and accounting staff.

As part of his settlement, Andrews is barred for five years from taking on an officer or director role in a public company. Also settling charges against them related to this matter are ex-Maxwell CEO David Schramm, who will pay almost $80K in disgorgement and prejudgment interest, plus a penalty. Ex-Maxwell controller James DeWitt will pay a $20K penalty. The two men are accused of not doing an adequate enough job of addressing red flags indicating that misconduct may have been afoot. Ex-Maxwell CFO Kevin Royal has not been charged by the SEC with wrongdoing. However, he repaid the company the $135,800 in compensation he received during the time that the alleged accounting violations are said to have occurred.

Canadian Company is Accused of Foreign Corrupt Practices Act Violations
Kinross Gold Corporation has settled an SEC case accusing the company of violating the Foreign Corrupt Practices Act (FCPA). Without denying or admitting to the regulator’s findings, Kinross Gold will pay $950K. It has also consented to a cease-and-desist order and for a year will report on the remedial steps it intends to take.

The SEC’s order states that in 2010, Kinross Gold acquired two African subsidiaries for $7.1B even though it knew that they didn’t have the proper controls and programs related to accounting and anti-corruption compliances. Even though a number of audits noted these deficiencies, Kinross Gold took three years to put the proper controls in place. After that, contends the regulator, the company did not “maintain them.”

The SEC also found that Kinross Gold awarded a logistics contract to a company preferenced by government officials in Mauritania (even though the company had “poor technical capabilities” and was considered a “high-cost provider”), failed to conduct the proper due diligence before contracting a consultant with political connections to help it make contacts with senior Mauritanian government officials, and paid consultants and vendors without first making sure that these fees were in line with policies restricting payments that were not proper.

Improper Audits Lead to Penalties and Disgorgement
In an unrelated SEC case, the regulator is accusing foreign affiliates of BDO Canada, Deloitte & Touche, and KPMB of conducting improper audits that involved avoiding Public Company Accounting Oversight Board oversight. To settle the charges, but without denying or admitting to the findings, BDO Canada will pay a $40K penalty, Deloitte in Zimbabwe will pay disgorgement plus interest of $99K, and KPMG in Africa will pay a $100K penalty, as well as disgorgement and interest of over $141K.

The regulator claims that KMPG and Deloitte & Touche Zimbabwe affiliates did an improper job of auditing most of the revenues and assets of a publicly trading company and did not register with PCAOB. Meantime, main auditors BDO and a KMPG South African affiliate are accused improperly depending on unregistered foreign auditors to fulfill company audits. The SEC said that this violates PCAOB standards, which mandates adequate inquiry and analysis when working with a different auditor.

The SEC Order in the Maxwell Technologies Case (PDF)

The SEC Order in the Kinross Gold Case (PDF)

Foreign Affiliates of KPMG, Deloitte, BDO Charged in Improper Audits, SEC, March 13, 2018

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