Global media analytics firm Comscore and its former CEO Serge Matta have agreed to pay penalties of US$5 million and US$700,000, respectively, after being charged by the US Securities and Exchange Commission (SEC) for fraud. Both parties engaged in a fraudulent scheme to overstate revenue by approximately US$50 million, and making false and misleading statements about key performance metrics.
Matta also agreed to reimburse Comscore US$2.1 million representing profits from the sale of Comscore stock and incentive-based compensation pursuant to Section 304(a) of the Sarbanes-Oxley Act and to the entry of an order barring him from serving as an officer or director of a public company for 10 years. Section 304(a) imposes severe financial penalties on CEOs and CFOs if the financial statements issued by their company are determined to have been materially inaccurate. Meanwhile, both Comscore and Matta have also agreed to cease-and-desist from future violations of the antifraud provisions of the federal securities laws.
Among other things, SEC's orders found that from February 2014 to 2016, Comscore and Matta entered into non-monetary transactions "for the purpose of improperly increasing its reported revenue". Through these transactions, Comscore and a counterparty would negotiate and agree to exchange sets of data without any cash consideration. Comscore recognised revenue on these transactions based on the fair value of the data it delivered, which had been improperly increased in order to inflate revenue, the statement said.
The SEC's orders also found that Comscore and Matta made false and misleading public disclosures regarding the company’s customer base and flagship product and that Matta lied to Comscore's internal accountants and external audit firm. According to the SEC press statement, this scheme enabled Comscore to "artificially exceed" its analysts' consensus revenue target in seven consecutive quarters and "create the illusion of" smooth and steady growth in Comscore's business.
Meanwhile Comscore said it is committed to maintaining strong internal controls, financial reporting, compliance, and corporate governance practices. Brent Rosenthal, chairman of the board of Comscore, said i t is pleased to have settled this legacy issue with the SEC.
“In addition to our commitment to compliance and with this matter behind us, the Board and I remain fully focused on the business and are committed to further developing our unique data assets, differentiated data analytics, and strong brand equity," Rosenthal added.
Meanwhile, Dale Fuller, interim CEO of Comscore, added: “With this matter now resolved, Comscore remains focused on its next phase of growth in order to drive profits and maximize shareholder value through the continued alignment of strategic priorities and development and delivery of products to drive future profitability.”
"As the SEC orders find, Comscore and its former CEO manipulated the accounting for non-monetary and other transactions in an effort to chase revenue targets and deceive investors about the performance of Comscore's business," Melissa R. Hodgman, associate director in the SEC's Enforcement Division, said.
She added that SEC will continue to hold issuers and executives accountable for such "serious breaches of their fundamental duty" to make accurate disclosures to the investing public, while giving appropriate credit for a company’s prompt remedial acts and cooperation.
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Last month, Comscore implemented a reduction in force plan, which saw about 8% of its total workforce being released. A previous SEC filing also said that the company will be reorganising its technology, product and sales divisions to optimise its focus on core areas of growth. The majority of the employees impacted by the reduction in force will exit the company in the third quarter of 2019. The news came a few months after its COO Kathryn Bachmann left at the end of May after serving for less than two months.
Meanwhile, Comscore also announced a 10% reduction in workforce during its first quarter earnings call in early May. Closer to home, this reduction in workforce also saw the the resignation of senior vice president for APAC Joe Nguyen, who was later replaced by new APAC heads, executive vice president for EMEA and APAC, Guido Fambach; and senior vice president for APAC Kedar Gavane.
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