SEC fines two companies for improperly reporting earnings, first in 'EPS Initiative' - Metro US

SEC fines two companies for improperly reporting earnings, first in ‘EPS Initiative’

To match Special Report SEC/INVESTIGATIONS

(Reuters) – The U.S. Securities and Exchange Commission fined two companies for violations that resulted in improper reporting of quarterly earnings, the regulator’s first enforcement actions under a program to detect such violations.

In a statement on Monday, the SEC said carpet manufacturer Interface Inc will pay a $5 million civil fine while the Pennsylvania bank Fulton Financial Corp will pay a $1.5 million civil fine. Neither admitted or denied wrongdoing.

Monday’s actions result from the SEC’s EPS Initiative, which uses risk-based data analytics to uncover suspect accounting and disclosure practices that can enable companies to report earnings per share that appear consistent or please Wall Street.

“Public company financial reporting should not present a misleading picture of performance,” Stephanie Avakian, director of the SEC enforcement division, said in a statement.

The SEC said Atlanta-based Interface manually changed its accounting for management bonuses, stock-based compensation and consulting expenses over five quarters in 2015 and 2016.

It said this caused Interface’s earnings per share to meet or exceed analyst forecasts, often when internal forecasts projected they would fall short.

The SEC said the changes were directed by Interface’s chief accounting officer, and sometimes also by its chief financial officer. They were also fined and no longer work for Interface.

Fulton, a Lancaster, Pennsylvania-based bank serving five mid-Atlantic states, was accused of accounting improperly for mortgage servicing rights in late 2016 and early 2017.

The SEC said this enabled Fulton to belatedly reverse an allowance for bad loans in the second quarter of 2017, when it otherwise would have fallen short of analyst forecasts, creating “an appearance of consistent earnings trends.”

Interface said in a statement it has improved oversight and cooperated with the SEC.

Fulton said in a separate statement it has strengthened its process for valuing its mortgage servicing rights portfolio.

(Reporting by Jonathan Stempel in New York; editing by Jonathan Oatis, Steve Orlofsky and Cynthia Osterman)

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