In a rare show of dissent among commissioners at the Securities and Exchange Commission, Luis Aguilar has published a scathing public statement denouncing a settlement surrounding falsifying revenue as a “wrist slap.”

Aguilar took exception over the SEC’s settlement with Lynn Blodgett, former president and CEO of Affiliated Computer Services, and Kevin Kyser, who were accused of inflating revenue figures and internal growth in reports to investors by falsely describing resale transactions as revenue. The settlement imposes a cease-and-desist order on both, as well as disgorgement and fines totaling nearly $675,000, about $210,000 of it charged to Kyser.

Aguilar believes Kyser got off too easily. “Given the egregious conduct that Mr. Kyser engaged in at ACS, the commission’s settlement, which lacks fraud charges or a timeout in the form of a Rule 102(e) suspension, is a wrist slap at best,” Aguilar says.

According to the SEC’s enforcement order, ACS arranged for a manufacturer to redirect certain pre existing orders through ACS to make it appear that ACS was somehow involved with the transaction, thus eligible to recognize revenue associated with them. The SEC says its investigation shows ACS had no role in the transactions, but reported revenue of approximately $125 million associated with them in 2008 and 2009.

Blodgett and Kyser certified the financial statements, met publicly disclosed internal growth targets as a result, and earned bonuses based on the inflated revenue. In 2009, their bonuses were 43 percent higher than they would have been if not for the mis-represented revenue figures, the SEC said.

Aguilar is incensed that Kyser in particular as a certified public accountant could provide false and misleading information to investors, receive inflated bonuses, and “limited, narrow non-fraud charges.” Historically, he says, similar violations have led to more serious charges leading to more serious consequences. He fears the start of a trend. “Beyond this particular matter, I am concerned that the commission is entering into a practice of accepting settlements without appropriately charging fraud and imposing Rule 102(e) suspensions against accountants in financial reporting and disclosure cases,” he says. “I am also concerned that this reflects a lack of conviction to charge what the facts warrant and to bring appropriate remedies.”

Despite recent claims that the SEC is beefing up enforcement efforts, Agullar says in his statement that the statistics on financial reporting and disclosure cases and related suspensions suggest the SEC is getting soft on keeping “bad apples” out of the securities industry. In 2010, the SEC brought 117 financial report cases and imposes suspensions in 54 percent of those cases. In 2011, the number fell to 86, with 54 percent leading to suspensions. In 2012, the case number fell to 76, and suspensions fell to 49 percent. In 2013, the case number was 68, with only 41 percent leading to suspensions. “In my six years as a commissioner, I have watched defendants fight charging decisions on all fronts, including fighting tooth-and-nail to avoid being suspended from appearing or practicing before the Commission pursuant to Rule 102(e),” he says. “This is to be expected, as a suspension order takes a fraudster out of the industry, and often has a far more lasting impact on the fraudster than the imposition of a monetary fine.”

Aguilar says he’s concerned it means fraud charges will more often be downgraded to books and records and internal control charges, allowing fraudsters to continue to practice. “In the end, these behind-the-curtain decisions can make fraudulent behavior appear to be an honest mistake,” he says. “The commission must send a strong and consistent message to the industry that the commission takes seriously its responsibility of requiring integrity in the financial markets.”

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