(HedgeCo.Net) The Securities and Exchange Commission today announced charges against two former executives at a government contractor that was the subject of an SEC enforcement action earlier this year and paid a $1.6 million penalty for accounting failures.
The SEC Enforcement Division alleges that David Pruitt, the then-vice president of finance in the Army Sustainment Division of L3 Technologies Inc., circumvented internal accounting controls and caused L3 to improperly recognize $17.9 million in revenue from a contract with the U.S. Army by creating invoices that were not actually delivered at the same time that the revenue was recorded. The extra revenue allegedly enabled employees in that division to barely satisfy an internal target for management incentive bonus payments.
The SEC Enforcement Division further alleges that Pruitt, a CPA, took steps on several occasions to conceal from L3’s corporate office and external auditor the fact that the invoices were not delivered. The matter against Pruitt will be scheduled for a public hearing before an administrative law judge, who will prepare an initial decision stating what, if any, remedial actions are appropriate.
The SEC separately instituted an order against Mark Wentlent, the former president of L3’s Army Sustainment Division, finding that he failed to follow up on red flags that Pruitt had caused L3 to improperly recognize revenue. Wentlent consented to the order without admitting or denying the findings, and he agreed to pay a $25,000 penalty. The bonus payment that Wentlent received as a result of the misconduct already has been rescinded by L3.
“Executives must be held accountable when they’re actively involved in corporate wrongdoing or look the other way. We allege that Pruitt circumvented critical accounting safeguards so improper revenue could be recorded to reach an internal target that enabled management to receive bonuses, and it was unreasonable for Wentlent to rely solely on Pruitt under the circumstances,” said Andrew M. Calamari, Director of the SEC’s New York Regional Office.