October 10, 2022
More SEC Fallout from Revolution Lighting
Two years after company execs pay penalties, global accounting firm RSM charged by SEC
In September 2020, a Securities and Exchange Commission investigation into the accounting practices of Connecticut-based Revolution Lighting Technologies led to formal charges being brought against the company and four of its executives. In a settlement agreement, the company and each of the individuals agreed to pay a combined $1.6 million in penalties.
Now, global tax and accounting behemoth, RSM is facing SEC penalties over their involvement with the Revolution Lighting Technologies revenue recognition scheme. The firm has agreed to pay a $3.75 million penalty while three senior-level RSM employees face sanctions.
An audit revealed that Revolution Lighting Technologies, a publicly traded company, had a practice of entering "bill and hold" sales -- a practice that enabled improper revenue recognition to make up for revenue shortfalls. The company allegedly recognized revenue from the uncompleted sales. On multiple occasions, executives allegedly concealed this practice by providing backdated documents related to "bill and hold" sales to the company's auditor. Revolution Lighting Technologies failed to disclose that "bill and hold" sales represented a significant portion of Revolution Lighting's revenue.
According to the SEC’s order, RSM’s planning and supervision of the audit, as well as the evaluation of audit results and review of Revolution’s disclosures, all failed to adhere to the Public Company Accounting Oversight Board’s auditing and quality control standards.
The SEC also charged RSM partners Steven Kirn and Richard Condon and senior audit manager Michael Piqueira for their roles in the improper audits. The SEC’s order against the three employees finds that Kirn, RSM’s lead partner on its Revolution audits, and Piqueira, the senior manager on those audits, failed to adequately plan, supervise, and execute the audits. Condon was charged with improperly reviewing and approving RSM’s analysis that inaccurately concluded Revolution’s errors and inflated revenue were immaterial to investors.
"Auditors are important checks against fraud, and they should be scrutinizing arrangements like bill and hold sales," said Gurbir Grewal, Director of the Division of Enforcement. "RSM failed to do this at all levels, from the engagement team up through the firm’s national office. And by giving Revolution a pass, investors learned only too late that Revolution was committing a multi-year fraud."
Without admitting or denying the SEC’s findings, RSM agreed to pay a $3.75 million penalty, to be censured, and to retain an independent consultant to review and evaluate its audit, review, and quality control policies and procedures. Without admitting or denying the SEC’s findings, Kirn and Piqueira agreed to be suspended from appearing and practicing before the SEC as accountants, with the right to apply for reinstatement after three years and one year, respectively. In addition, without admitting or denying the SEC’s findings, Condon agreed to a censure. RSM, Kirn, and Piqueira also agreed to a cease-and-desist order.
The SEC’s case is being handled by Peter Moores, Ryan Murphy, Trevor Donelan, Marc Jones, and Michele T. Perillo of the Boston Regional Office.
