Broadwind Energy, an alternative energy company, yesterday agreed to pay a $1 million penalty to the Securities and Exchange Commission for accounting and disclosure violations.
According to the SEC, Broadwind Energy prevented investors from knowing that reduced business from two significant customers caused substantial declines in the company’s long-term financial prospects. The SEC alleges that senior management at Broadwind Energy anticipated substantial impairment of intangible assets associated with these customer relationships and privately shared this information with the company’s auditors, investment bankers, and lender. Yet, Broadwind Energy did not disclose this information publicly to investors until several months later, when it recorded a $58 million impairment charge in its financial statements.
“In fact, Broadwind Energy conducted a public offering of its stock without disclosing the impairment in its registration statement,” the SEC stated. “When the information was disclosed in an annual report two months after the offering, Broadwind Energy’s stock price declined 29 percent.”
According to the SEC’s complaint, filed in U.S. District Court for the Northern District of Illinois, Broadwind Energy’s then-CEO J. Cameron Drecoll approved and certified public filings containing the misrepresentations and misleading omissions when he should have known that the intangible assets were impaired. Broadwind Energy’s CFO Stephanie Kushner, who was newly hired at the time, failed to take the steps necessary to ensure that the financial statements and disclosures were accurate. Drecoll and Kushner will pay nearly $700,000 in combined disgorgement and penalties as a result.
The SEC’s complaint also alleges that Broadwind Energy committed other violations arising from accelerated revenue recognition practices and inadequate disclosures. The deterioration in customer relationships that produced the impairment charge also compromised the ability of one of Broadwind Energy’s subsidiaries to meet monthly debt covenants associated with its primary credit facility.
According to the SEC, to avoid default and other negative consequences, subsidiary personnel accelerated revenue until Broadwind Energy could raise funds to retire the credit facility through the public stock offering. Broadwind Energy failed to disclose this practice and its effect on future revenue in the registration statement used in the offering. In addition, as a result of the transactions, Broadwind reported $4 million of improperly recognized revenue.