The Securities and Exchange Commission has charged a sports supplements and nutrition company with a series of accounting and disclosure violations, including the failure to properly report perks provided to its executives as compensation. Denver-based MusclePharm agreed to settle the charges.
An SEC investigation found that MusclePharm omitted or understated nearly $500,000 worth of perks received by executives, including approximately $244,000 paid to CEO Brad Pyatt related to automobiles, apparel, meals, and personal tax and legal services. Even after the company began an internal review of undisclosed executive perks and then-audit committee chair Donald Prosser became directly involved in the process, MusclePharm continued filing financial statements that failed to disclose private jet use, vehicles, and golf club memberships.
Among other accounting and disclosure violations outlined in the SEC’s orders instituting settled administrative proceedings against MusclePharm, Prosser, Pyatt, and former chief financial officers L. Gary Davis and Lawrence Meer:
Not disclosing related party transactions with a major customer and failing to implement sufficient policies to identify and disclose related party transactions.
Failing to disclose bankruptcies related to two executive officers, and misstated that no members of the board of directors or other executives had been involved in any bankruptcy proceedings.
Improperly accounting for advertising and promotional related costs and consequently overstating revenue.
Not disclosing continuing sponsorship commitments totaling $6.9 million and $100,000 related to an aircraft lease agreement.
Failure to implement internal accounting controls for perks and other areas where it committed accounting and disclosure violations.
The SEC also alleges that MusclePharm issued stock without a registration statement when it entered into numerous transactions with third parties that agreed, in exchange for company shares, to pay cash to vendors. MusclePharm owed vendors approximately $1.1 million in outstanding invoices and was short on funds to pay them.
MusclePharm and the four individuals settled the cases without admitting or denying the SEC’s findings. MusclePharm agreed to pay a $700,000 penalty and hire an independent monitor for one year among other undertakings. Pyatt agreed to pay a $150,000 penalty, and Prosser and Davis each agreed to pay $30,000 penalties. Meer and Davis agreed to be suspended from practicing as an accountant on behalf of any SEC-regulated entities with a right to reapply after three and two years, respectively.