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February 7, 2023

How Do We Fraudulently Boost Revenues for Thee? Let Me Count the Ways

If you’re going to get busted for using fraudulent accounting practices to artificially inflate your company’s revenues, you might as well make it worth your while—or at least worth the fine you’re going to have to pay to the Securities and Exchange Commission.

The SEC levied fraudulent accounting charges against Tangoe, formerly a public telecommunications expense management company, on Sept. 4. Tangoe has settled the SEC’s charges without admitting or denying the allegations. The company agreed to pay a penalty in the amount of $1.5 million.

In addition, four former Tangoe executives, including the company’s former CEO and CFO, were charged for their involvement in the wrongdoing.

According to a CFO Magazine report, Tangoe allegedly didn’t just use a couple tactics to improperly recognize revenues and hide its pre-tax losses over three years; it used SEVEN different ways:

1) counting customers’ prepayments for future services as current revenue

2) improperly recording a loan from a business partner as revenue

3) recording revenue in the wrong reporting periods

4) prematurely recording revenue from contingent-fee arrangements

5) recording revenue from customers who were unlikely to pay

6) violating the accounting rules for bad-debt reserves

7) prematurely counting revenue from long-term contracts with ongoing obligations

And according to the SEC’s complaint, which was filed in a Connecticut federal court, it wasn’t even a huge amount of revenue that was improperly recognized:

… about $40 million of revenue out of the total of $566 million reported between 2013 and 2015.

The finance team knew something smelled fishy and questioned many of the fraudulently recorded transactions, according to CFO Magazine:

But Tangoe’s former head of expense management operations, Donald J. Farias, falsified business records, some of which were provided to Tangoe’s finance team and its external auditors to support revenue recognition decisions.

Farias, former CEO Albert R. Subbloie, former CFO Gary R. Martino, and former vice president of finance Thomas H. Beach were each charged with violating provisions of the federal securities laws.

Subbloie, Martino, and Beach settled the SEC’s charges without admitting or denying the allegations, and agreed to pay penalties in the amount of $100,000, $50,000, and $20,000, respectively.

The settlement is subject to court approval. The case against Farias is still ongoing.

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1 Comment

  1. $40 Million fraud and total fines don’t even crack $1.7 Million? With weak “enforcement” actions like this, is it any wonder people commit fraud? Seems like there is only upside to doing it.

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