Companies Fined for Failing to Remediate Internal Control Problems
Four public companies have settled with the Securities and Exchange Commission (“SEC”) after being charged with failing to resolve their internal control reporting failures. The SEC said the companies disclosed material weaknesses in internal control over financial reporting (“ICFR”) for seven to ten straight annual reporting periods. Such weaknesses involved certain high-risk areas of the companies’ financial statement presentation.
Grupo Simec, a Mexican iron and steel manufacturer, disclosed material weaknesses in its filings from 2008 to 2017. However, in 2015 and 2016, company management did not test its controls. The SEC alleged Grupo Simec failed develop a control structure and fix material weaknesses until after the commission’s staff contacted the company. Grupo Simec was fined $200,000 and is still addressing material weaknesses through remediation.
Illinois-based dairy food producer Lifeway Foods reported material weaknesses between 2007 and 2015. The company also disclosed in 2016 significant deficiencies in the aggregate constituted a material weakness. In 2013 and 2014, the SEC claimed Lifeway management did not review its ICFR. Lifeway did not completely remedy its material weaknesses and determine its controls are effective until its fiscal year ending December 31, 2017. Because of its failure to address its ICFR, Lifeway was fined $100,000.
Digital Turbine, an Austin, Texas-based technology company with mobile delivery platforms, reported material weaknesses between fiscal 2011 and fiscal 2017, but the SEC said the company waited to fully fix its material weaknesses until the end of fiscal 2018. Digital Turbine was also fined $100,000.
Vancouver, Washington-based biotech company CytoDyn reported material weaknesses from 2008 to 2016, but the SEC said its filings were nearly identical during that span. CytoDyn fixed the weaknesses and concluded that its financial controls are operative as of May 31, 2017. The SEC fined the company $35,000.