The SEC filed a formal complaint against Revolution Lighting Technologies OTC: RVLT on September 24th, 2020. The complaint states that between the end of 2014 and mid-2018, Revolution and Revolution executives LaPenta, DePalma, Garner, and O’Neal falsely inflated the amount of revenue Revolution reported. Revolution published these inflated revenues in financial reports it filed with the Commission, made available to the investing public, and incorporated into a public stock offering. The inflated revenues were also included in public statements by Revolution and its executives. By doing so, Defendants misled investors and potential investors in Revolution by making it appear that the company was selling more lighting products, and making more revenue, than it actually was.
In May 2016, Revolution issued a public offering of 2,775,000 shares of common stock and in the same year materially misstated fiscal year 2014 and fiscal year 2015 financial statements. The revenues reported in these documents were fraudulently elevated because of Revolution’s improper recording of bill and hold transactions
This is unfortunately common, due to the high risk of abuse and misleading reporting of revenues in the relevant time period, auditors routinely scrutinized the circumstances under which companies recognized sales on a “bill and hold” basis. In April of 2020 there was a proposed settlement but it appears by the actions made by the SEC today that there was a dismal of the proposed settlement.
The company then allegedly recognized revenue from the uncompleted sales. On multiple occasions, Garner allegedly concealed this practice by providing backdated documents related to “bill and hold” sales to the company’s auditor. As alleged, DePalma kept careful track of Revolution Lighting’s reporting of bill and hold transactions through a “bill and hold schedule” that Garner, and later O’Neal, prepared. The complaint alleges that the defendants failed to disclose that “bill and hold” sales represented a significant portion of Revolution Lighting’s revenue or that the company was materially deviating from its stated revenue-recognition policies.
It is apparent from the stock chart that Revolution was in serious trouble and apparently chose to inflate revenues to possibly correct the downward trend. The SEC is going after each individual for possible jail time and we will keep you posted on the conclusion of this case. Happy Trading!
