SEC Charges Pipe Manufacturer and Former CFO with Reporting and Accounting Violations
July 10, 2018
File No. 3-18582
July 10, 2018 - The Securities and Exchange Commission today charged Advanced Drainage Systems, Inc. ("ADS"), an Ohio-based drainage pipe manufacturer, and its former CFO Mark Sturgeon, with various reporting and accounting violations resulting in misstated financial statements in the company’s IPO registration statement and subsequent periodic reports in 2015.
According to the SEC’s order instituting administrative proceedings, ADS materially misstated its financial results for fiscal years 2013, 2014, and 2015, and its quarterly financial results for fiscal years 2014 and 2015 in its registration statement and in quarterly and other reports filed with the Commission. For example, ADS overstated its income before taxes in fiscal years 2013, 2014, and 2015 by $7.8 million (20%), $1.8 million (5%), and $22 million (90%), respectively. These misstatements resulted from improper accounting, including unsupported journal entries directed or approved by Sturgeon, and insufficient internal accounting controls.
The SEC’s order finds that ADS and Sturgeon violated the antifraud provisions of Sections 17(a)(2) and (3) of the Securities Act of 1933 and various reporting, books and records, and internal controls provisions of the Securities and Exchange Act of 1934. ADS and Sturgeon agreed to settle the charges without admitting or denying the findings. The Commission ordered ADS to pay a $1 million civil penalty, ordered Sturgeon to pay a $100,000 civil penalty and reimburse the company $173,970 in stock sale profits, and prohibited Sturgeon from appearing or practicing before the Commission as an accountant. The Commission also ordered ADS and Sturgeon to cease and desist from committing or causing any future violations of these provisions of the federal securities laws.
The SEC’s investigation was conducted by Brian Vann, Daniel A. Weinstein and Michael Hoess with assistance from James Smith. The case was supervised by Brian O. Quinn.