Bankrate Inc., an online provider of consumer financial information, has agreed to pay $15 million to settle accounting fraud charges leveled against it by the Securities and Exchange Commission. Three former executives were also charged, accused of fraudulently manipulating the company’s financial results to meet analyst expectations.
The SEC, in a complaint filed in federal court in Manhattan this week, alleges that Bankrate’s then-CFO Edward DiMaria, then-director of accounting Matthew Gamsey, and then-vice president of finance Hyunjin Lerner fabricated revenues and avoided booking certain expenses to meet analyst estimates for a key financial metric: adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA). Bankrate consequently overstated its second quarter 2012 net income and its stock rose following an announcement of the inflated financial results. DiMaria then, allegedly, proceeded to profit from selling more than $2 million in company stock.
After learning that Bankrate’s preliminary financial results for the second quarter of 2012 fell short of analyst estimates, DiMaria decided to increase the company’s revenue after the end of the quarter," the SEC alleges. With the assistance of Lerner and with Gamsey, he improperly directed two Bankrate divisions (insurance and credit cards) to book round dollar amounts of additional revenue without any support. The insurance division immediately booked the requested revenue to a dormant customer account with no intention of justifying the revenue until it was flagged by the company’s auditor. The credit cards division resisted the directive, but nevertheless booked improper revenue. Refusing to accept the credit cards division’s unwillingness to record the full amount of improper revenue as he directed, DiMaria insisted that the approximate difference be recorded as revenue by a different business unit. Bankrate also reduced expenses or failed to book them at all in order to meet analyst estimates.
The SEC also alleges that one of the company's expense accounts had been used as a “cushion” account to manipulate the company’s financial results for at least a year and DiMaria, Gamsey, and Lerner lied to the company’s auditor regarding the improper accounting entries.
Bankrate and Lerner consented to an order to cease and desist from violating the antifraud, reporting, books-and-records, and internal controls provisions of the federal securities laws. Without admitting or denying the SEC’s findings, Bankrate agreed to pay a $15 million penalty and Lerner agreed to pay a $150,000 penalty as well as full disgorgement of his ill-gotten gains of $30,045 from selling Bankrate stock after the company announced false financial results.
Lerner also agreed to be barred from serving as an officer or director at a public company for five years and from public company accounting for at least five years.