A firm and its former CEO settled SEC charges for accounting, reporting and internal control failures that resulted in a multi-year restatement of its financial statements. According to the Order, the firm's inventory tracking system, which populated the firm's financial statements, did not properly maintain historical cost information for its inventory. The SEC found that the CEO and other personnel at the firm were aware of the problem but did not take any remedial action, including failing to:
- fix the inventory tracking system;
- design and maintain accounting controls to ensure compliance with GAAP; and
- design, maintain and evaluate the effectiveness of disclosure controls and procedures and internal control over financial reporting.
The SEC further found that, as a consequence of these lapses, the CEO inaccurately certified that the firm's internal controls were properly designed and effective.
As a result of its findings, the SEC determined that the firm and its former CEO violated the reporting, recordkeeping and internal control provisions of SEA Sections 13(a), 13(b)(2)(A) and 13(b)(2)(B), and Rules 12b-20, 13a-1, 13a-13 and 13a-15(a)-(c) thereunder. The former CEO was also found in violation of the certification provision of the Exchange Act, Rule 13a-14.
To settle the charges, the firm and its former CEO agreed to (i) a censure, (ii) cease and desist from additional violations and (iii) a $200,000 and a $25,000 fine, respectively. In the Order, the SEC acknowledged the remedial actions taken by the firm after learning of the issues involving its internal controls.
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