Hmm, wonder if Jim Cramer will mention this on his show tonight?
The Securities and Exchange Commission today charged a digital financial media company and three executives for their roles in an accounting fraud that artificially inflated company revenues and misstated operating income to investors.
According to the SEC, TheStreet Inc. filed false financial reports throughout 2008 by reporting revenue from fraudulent transactions at a subsidiary it had acquired the year before. The SEC alleges that subsidiary co-presidents Gregg Alwine and David Barnett entered into "sham transactions" with friendly counterparties that had little to no economic substance and fabricated and backdated contracts and other documents to facilitate the fraudulent accounting.
Barnett is additionally charged with misleading TheStreet’s auditor to believe that the subsidiary had performed services to earn revenue on a specific transaction when in fact it did not perform the services. The SEC also alleges that TheStreet’s former chief financial officer Eric Ashman caused the company to report revenue before it had been earned.
The three executives agreed to pay financial penalties and accept officer-and-director bars to settle the SEC’s charges.
“Alwine and Barnett used crooked tactics, Ashman ignored basic accounting rules, and TheStreet failed to put controls in place to spot the wrongdoing,” said Andrew M. Calamari, Director of the SEC’s New York Regional Office. “The SEC will continue to root out accounting fraud and punish the executives responsible.”
Ashman agreed to pay a $125,000 penalty and reimburse TheStreet $34,240.40 under the clawback provision (Section 304) of the Sarbanes-Oxley Act, and he will be barred from acting as a director or officer of a public company for three years. Barnett and Alwine agreed to pay penalties of $130,000 and $120,000 respectively, and to be barred from serving as officers or directors of a public company for 10 years. Without admitting or denying the allegations, the three executives and TheStreet agreed to be permanently enjoined from future violations of the federal securities laws.
Earlier this year, TheStreet.com senior editor Michael Baron was implicated but not charged in an insider trading probe so a little drama is nothing new to this crew.