It’s that time of year, when newsrooms do their review looking for stories and other accomplishments that can be nominated for awards.
My editors asked me which stories I thought should be put in the hopper for their review and, of course, I mentioned the three topics that I’ve been following closely and that climaxed this year. They have been chronicled quite extensively for you on this blog but here are the links to the original stories on MarketWatch.
Residential and commercial security company ADT Inc. has earned the wrath of the Securities and Exchange Commission — and a $100,000 fine — over its failure to give equal prominence to financial measures reported under the industry standard as under nonstandard ones.
In accordance with SEC rules, companies are obliged to report under Generally Accepted Accounting Principles, or GAAP, when presenting quarterly, annual or current financial numbers. They are allowed to supplement those numbers with certain non-GAAP metrics, but they must give the GAAP numbers equal or greater prominence in their reporting.
ADT ADT, +2.60% failed to do that when it reported financial results for its fourth quarter and for fiscal 2017 on March 15, and again when reporting first-quarter numbers for 2018, according to the SEC, as MarketWatch’s Francine McKenna and Tomi Kilgore wrote at the time.
“When including a non-GAAP financial measure in a filing with the Commission, (companies) must include a presentation, with equal or greater prominence, of the most directly comparable financial measure or measures calculated and presented in accordance with GAAP,” the SEC said in an enforcement announcement ordering the company to cease and desist from the practice and outlining the penalty.
Symantec’s shares dove 33.1% May 11, 2018 after the company revealed it had started an investigation, and said the probe related to “the company’s public disclosures including commentary on historical financial results, its reporting of certain non-GAAP measures including those that could impact executive compensation programs, certain forward-looking statements, stock trading plans and retaliation.”
What’s it all about? Symantec was adding back millions in “ghost revenue” — deferred revenue that accounting standards force them to write off after an acquisition — when calculating executive bonuses. Acquiring companies often assign a fair value to the deferred revenue added to their books when purchasing another company that are less than the amount reported on the acquired companies’ balance. Those write-downs are permanent, not timing differences, and are called “deferred revenue purchase accounting adjustments.” They are required by Generally Accepted Accounting Principles or GAAP.
The write-downs become “ghost revenues” for the acquiring company. Symantec and others are adding back the “ghost revenue” to GAAP revenue numbers to create adjusted revenue metrics that are reported to investors in the earnings release and via the conference call.
I originally wrote about the issue in November 2017, and mentioned other companies doing the same thing.
A shareholder class action lawsuit has been filed as a result of my article and the whistleblowers cliams that alleges Symantec manipulated quarterly financial results to produce big payouts for top executives. The names Symantec along with CEO Greg Clark, CFO Nick Noviello and former accounting head Mark Garfield as defendants. Previously Blue Coat’s CEO, Clark, became CEO of Symantec after it bought Blue Coat in 2016. The suit alleges that Clark and Noviello brought “Blue Coat’s unethical practices and ‘toxic culture’ with them to Symantec.”
India Globalization Capital’s chief executive boasted in February that his was the only cannabis company that was using blockchain technology — combining two of the hottest investment trends.
The CEO, Ram Mukunda, went on to say that “2018 is a very exciting year for us with a lot of milestones investors can watch for.”
Indeed, for investors, it has been quite a ride. Shares of IGC IGCC, +15.89% surged 35-fold, to $13 from 37 cents between Aug. 13 and Oct. 2, as the company promised cannabis-based treatments for conditions including Alzheimer’s, Parkinson’s, eating disorders and even epilepsy in cats and dogs.
But after MarketWatch reported last month on potential IGC warning flags, its shares plunged more than 80%.
Other details have emerged that raise questions about the company. Its chief scientific officer has been accused of falsifying data in scientific papers. Another employee, who is named as a co-inventor of a cannabis-based pain treatment in an IGC patent filing, was reprimanded and fined by the West Virginia Board of Medicine last year for failing to disclose that he pleaded guilty to felony tax fraud in 2012, according to state filings.
And while IGC says on its website that it is rigorously studying cannabis, the company has spent only $137,000 in fiscal 2018 on research and development, according to its annual report. It has spent $274,000 in the first two quarters of fiscal 2019, according to another securities filing. In comparison, the average sum for a Phase 2 clinical trial of a treatment for pain is $17 million, according to CenterPoint, which advises on clinical trials.
Trading in the shares of IGC was halted on Oct 29. The NYSE American exchange said it would delist IGC’s stock. IGC said that it “strongly disagrees” with the NYSE decision and is now seeking a listing on “an exchange that embraces our innovation.”