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U.S. Securities and Exchange Commission

U.S. SECURITIES AND EXCHANGE COMMISSION

Litigation Release No. 23673 / October 17, 2016

Securities and Exchange Commission v. Lime Energy Co. et al., Civil Action No. 1:16-cv-08088 (S.D.N.Y. filed Oct. 17, 2016)

SEC Charges Energy Services Company and Executives with Accounting Fraud

The Securities and Exchange Commission today charged an energy services provider and four executives for their roles in an accounting fraud in which the company recognized revenue earlier than allowed in order to meet internal targets.

Lime Energy Co. agreed to pay $1 million to settle the charges, and its four now-former executives also agreed to settlements.

The SEC's complaint alleges that Lime Energy improperly recognized $20 million in revenue from at least 2010 to 2012. Two then-executives in the company's utilities division — vice president of operations Joaquin Alberto Dos Santos Almeida and director of operations Karan Raina — developed procedures to enable the company to recognize revenue on newly signed contracts based on documentation received before year-end 2010. But when documentation did not arrive in time, they allegedly went ahead and booked the revenue anyway.

According to the SEC's complaint, Almeida and Raina became even more aggressive in 2011 and 2012 as they further recognized revenue earlier than allowed by accounting principles as they faced increasing pressure to produce results. They eventually went so far as to direct internal accountants to book revenue on jobs that didn't exist. The SEC further alleges that Lime Energy's then-corporate controller Julianne M. Chandler accepted new accounting entries to book millions of dollars in additional 2011 revenue well after the year-end close. And in February 2012 when Lime Energy still needed $500,000 to meet its 2011 revenue target, the company's then-executive vice president James G. Smith suddenly sent Chandler new entries that provided the company with even more additional revenue to improperly recognize.

The SEC's complaint was filed in U.S. District Court for the Southern District of New York, and the settlements are subject to court approval. Smith agreed to pay a $50,000 penalty and be barred from serving as an officer or director of a public company for five years. Chandler agreed to a $25,000 penalty and a five-year officer-and-director bar. Almeida agreed to a permanent officer-and-director bar, and Raina agreed to a $50,000 penalty. They neither admitted nor denied the allegations.

Chandler separately agreed to be suspended from appearing or practicing before the SEC as an accountant, which includes not participating in the financial reporting or audits of public companies. An SEC order would permit Chandler to apply for reinstatement after five years.

The SEC's investigation found no personal misconduct by Lime Energy's then-CEO John E. O'Rourke and then-CFO Jeffrey R. Mistarz, who reimbursed the company $67,728 and $118,196.01 respectively for cash bonuses and certain stock awards they received during the period when the company committed accounting violations. Therefore it wasn't necessary for the SEC to pursue a clawback action under Section 304 of the Sarbanes-Oxley Act of 2002.

The SEC's complaint charges: Lime with violating Section 17(a) of the Securities Act of 1933, Sections 10(b), 13(a), 13(b)(2)(A), and 13(b)(2)(B) of the Securities Exchange Act of 1934, and Exchange Act Rules 10b-5, 13a-1, and 13a-13; Smith, Chandler, and Almeida with each violating Sections 17(a)(1) and (3) of the Securities Act, Sections 10(b) and 13(b)(5) of the Exchange Act, and Exchange Act Rules 10b-5(a) and (c) and 13b2-1, and with aiding and abetting Lime's violations of Section 17(a)(2) of the Securities Act, Sections 10(b), 13(a), and 13(b)(2)(A) of the Exchange Act, and Exchange Act Rules 10b-5(b), 13a-1, and 13a-13; and Raina with violating Section 17(a)(3) of the Securities Act, Section 13(b)(5) of the Exchange Act, and Exchange Act Rule 13b2-1, and with aiding and abetting Lime's violations of Sections 13(a) and 13(b)(2)(A) of the Exchange Act, and Exchange Act Rules 13a-1 and 13a-13.

The SEC's investigation was conducted by Christopher G. Margand and Colin J. Rand with assistance from Christian Schultz, Dean M. Conway, Kristen Dieter, and Jan M. Folena. The case was supervised by David Frohlich.

SEC Complaint

 

http://www.sec.gov/litigation/litreleases/2016/lr23670.htm


Modified: 10/17/2016