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From Securities Regulation Daily, October 17, 2016

Energy company, former executives settle SEC $20 million accounting fraud charges

By Kevin Kulling, J.D.

An energy services provider will pay $1 million to settle SEC charges that it and four of its executives engaged in accounting fraud in connection with the company recognizing revenue earlier than allowed in order to meet internal targets. The settlement comes as the SEC charged Lime Energy Co. with improperly recognizing $20 million in revenue from 2010 to 2012 (SEC v. Lime Energy Co., October 17, 2016).

Lime Energy accounting. In a civil complaint filed in federal court, the SEC alleged that Lime improperly recognized millions of dollars of revenue earlier than appropriate under generally accepted accounting principles (GAAP) as well as millions of dollars of non-existent revenue. Furthermore, the complaint alleged that in publicly filed quarterly and annual reports, the company misstated a total of more than $33 million in revenue. The complaint also alleged that in May 2012, Lime’s false financial statements were used in the offer and sale of $2.55 million of common stock to one of Lime’s directors.

Individuals charged. The SEC said that two former executives of Lime developed procedures to enable the company to recognize revenue on newly-signed contracts based on documentation received before year end 2010. When the documentation did not arrive on time, the executives went ahead and booked the revenue anyway, the SEC said in a press release.

Joaquin Alberto Dos Santos Almeida, the former vice president of operations in Lime’s utilities division, and Karan Rian, director of operations, agreed to settle the charges against them. In addition, Julianne Chandler, Lime’s then corporate controller, and James Smith, former executive vice president, were also charged and agreed to settlements with the SEC.

Complaint details. According to the SEC’s complaint, Almeida and Raina became increasingly aggressive in 2011 and 2012 as they further recognized revenue earlier than allowed by accounting principles as they faced increasing pressure to produce results. They allegedly directed internal accountants to book revenue on jobs that did not exist. In addition, Chandler allegedly accepted new accounting entries to book millions of dollars in additional 2011 revenue well after the year end close. When the company needed $500,000 to meet its 2011 revenue target, Smith sent Chandler new entries that provided the company with even more additional revenue to improperly recognize, according to the complaint.

Settlement terms. In addition to Lime’s $1 million fine, Smith agreed to pay a $50,000 penalty and be barred from serving as an officer or director of a public company for five years. Chandler agreed to a $25,000 penalty and a five year officer and director bar. Almeida faces a permanent officer and director bar, while Raina agreed to a $50,000 penalty. The settlements are subject to court approval.

The settling parties did not admit or deny the allegations in settling the charges.

The case is No. 16-cv-08088.

Attorneys: Scott W. Friestad for the SEC.

Companies: Lime Energy Co.

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