SEC Charges Online Marketing Company for Inflating Subscriber Numbers
June 5, 2018
File No. 3-18531
June 5, 2018 – The Securities and Exchange Commission announced findings today that a Massachusetts-based online marketing company fraudulently inflated subscriber counts and revenue per subscriber numbers. The company, Endurance International Group Holdings Inc., agreed to pay an $8 million penalty to settle the charges.
According to the SEC’s order, Endurance and Constant Contact Inc., which Endurance acquired in 2016, misled investors about subscriptions to their web hosting and internet-based marketing products. The SEC’s order found that subscription metrics were important to the companies for the purpose of assessing business performance, and were also a chief source of revenue. Before being acquired by Endurance, the order found that Constant Contact inflated its subscriber numbers in a ploy dubbed the “Save Program,” through which company staff were instructed and incentivized to offer free service to customers who sought to cancel their subscriptions, so that Constant Contact could keep the customers on the rolls as active subscribers. Endurance also failed to tell investors about an error which resulted in the company overstating its own subscriber count.
The SEC’s order finds that Constant Contact violated Sections 10(b), 13(a), and 13(b)(2)(A) of the Securities Exchange Act of 1934 and rules 10b-5, 13a-1, 13a-11, 13a-13 and 12b-20 thereunder as well as Section 17(a) of the Securities Act of 1933. The SEC’s order also finds that Endurance violated Section 17(a)(2) of the Securities Act and Sections 13(a) and 13(b)(2)(A) of the Exchange Act and Rules 13a-1, 13a-11, 13a-13, and 12b-20 thereunder. Endurance and Constant Contact settled the charges without admitting or denying the SEC’s findings and agreed to a cease-and-desist order in addition to the penalty.
The SEC’s investigation, which is continuing, has been conducted by Michael J. Vito, David M. Scheffler, Patrick Noone, and Celia D. Moore of the Boston office. The SEC appreciates the assistance of the Financial Industry Regulatory Authority.