The Securities and Exchange Commission (SEC) on Tuesday charged two former executives of WageWorks, an employee benefits provider, with making false and misleading statements and omissions that resulted in the improper recognition of $3.6 million in revenue.
Without admitting or denying the SEC’s findings, former Chief Executive Officer Joseph Jackson agreed to pay a $75,000 penalty and reimburse WageWorks for $1.9 million in incentive-based compensation and profits from the sale of company stock. Former Chief Financial Officer Colm Callan agreed to pay a $100,000 penalty and reimburse WageWorks for $157,590 in incentive-based compensation.
The details: In March 2016, WageWorks signed a contract with a large client to process benefits claims for certain public-sector employees. On multiple occasions after signing the contract, the client’s employees informed WageWorks it did not intend to pay for certain development and transition work associated with the contract. Nonetheless, Callan directed WageWorks to recognize $3.6 million in revenue related to this work, according to the SEC’s order.
When questioned by WageWorks’ internal accounting staff and external auditor about the status of the $3.6 million that had been booked but not yet received, “Callan and Jackson consistently failed to disclose that the client’s employees had denied that it owed these amounts,” the SEC said.
In 2019, once the company’s auditor was informed the client didn’t intend to pay for the development and transition work, WageWorks restated its financial statements for the second quarter, third quarter, and fiscal year 2016. Both Jackson and Callan left the company in 2018 as a result of their conduct leading up to the restatements, the SEC said.
Compliance lesson: “Jackson and Callan repeatedly failed to share important information about WageWorks’s ability to collect a significant receivable with WageWorks’s internal accounting personnel and external auditor,” said Erin Schneider, director of the SEC’s San Francisco Regional Office, in a press release. “Public companies and their executives must consider all material facts—not just the ones that are favorable to their position—when making financial reporting decisions.”