UNITED STATES OF AMERICA
|In the Matter of
Antoinette A. Parsons and
|ORDER INSTITUTING PUBLIC PROCEEDINGS PURSUANT TO SECTION 21C OF THE SECURITIES EXCHANGE ACT OF 1934, MAKING FINDINGS AND IMPOSING A CEASE-AND-DESIST ORDER|
The Securities and Exchange Commission ("Commission") deems it appropriate that public administrative proceedings be, and hereby are, instituted pursuant to Section 21C of the Securities Exchange Act of 1934 ("Exchange Act") to determine whether Antoinette A. Parsons and Stacy L. Hamm ("Respondents") violated or were a cause of violations of Section 13(a) of the Exchange Act and Rules 13a-1, 13a-13 and 13b2-1 thereunder.1
In anticipation of the institution of these administrative proceedings, Respondents each submitted an Offer of Settlement ("Offer") that the Commission has determined to accept. Solely for the purposes of these proceedings and any other proceedings brought by or on behalf of the Commission or to which the Commission is a party, and without admitting or denying the findings contained herein, except as to jurisdiction over Respondents and over the subject matter of these proceedings, which Respondents admit, Respondents consent to the entry of this Order Instituting Proceedings Pursuant to Section 21C of the Securities Exchange Act of 1934, Making Findings and Imposing a Cease-and-Desist Order ("Order"). The Commission has determined that it is appropriate to accept the Respondents' Offers and accordingly is issuing this Order.
Based on the foregoing, the Commission finds that:2
A. Respondents and MicroStrategy
Antoinette A. Parsons, age 34, began working at MicroStrategy Incorporated in September 1997, and served as corporate controller, director of finance and accounting and vice president of finance.
Stacy L. Hamm, age 28, began working at MicroStrategy in March 1998, reporting to Parsons as accounting manager.
MicroStrategy, Inc. is a Delaware corporation with its principal place of business in Vienna, Virginia. MicroStrategy's common stock was at all relevant times registered with the Commission pursuant to Section 12(g) of the Exchange Act and listed on the NASDAQ National Market System.
From the time of its initial public offering in June 1998 through March 2000, MicroStrategy materially overstated its revenues and earnings contrary to Generally Accepted Accounting Principles ("GAAP"). The company's public financial reports during this time showed a growing software and information services company enjoying positive net income. In fact, as investors later learned after MicroStrategy's restatement announcements in March and April 2000, the company should have reported net losses from 1997 through the present.
MicroStrategy's restatement primarily arose from its premature recognition of revenue arising from the misapplication of AICPA Statement of Position 97-2 ("SOP 97-2") in connection with multiple element deals. A lesser portion of the restatements resulted from deals in which MicroStrategy had not properly executed contracts in the same fiscal period that revenue was recorded from those deals. The revenue from these contracts should have been recognized in subsequent periods. Respondents were aware of the company's practice of recording revenue from these improperly executed contracts.
C. Contract Signing
As is common in the software industry, the majority of MicroStrategy's transactions closed in the final days of the fiscal period. As a result, at the end of a quarter MicroStrategy's contracts department received numerous contracts signed by customers that needed (according to company policy) to be signed by MicroStrategy.
To maintain maximum flexibility to achieve the desired quarterly financial results, MicroStrategy held in abeyance, until after the close of the quarter, contracts that had been signed by customers but had not yet been signed by MicroStrategy. Only after MicroStrategy determined the desired financial results were the unsigned contracts apportioned between the just-ended quarter and the then-current quarter, signed and given an "effective date." In some instances, the contracts were signed without affixing a date allowing the company further flexibility to assign a date at a later time.
Respondents were responsible for drafting the company's revenue recognition policy. That policy, which as drafted was consistent with SOP 97-2, required the signature of both MicroStrategy and the customer prior to recognizing revenue. After joining the company, both respondents became aware that MicroStrategy routinely recognized revenue from contracts executed by the customers within the reporting period, but executed by MicroStrategy subsequent to the period. Despite the inconsistency of this practice with the company's stated policy and with GAAP, neither respondent raised questions about contract execution with the company's executive officers or with the company's audit committee.
Section 13(a) of the Exchange Act requires issuers to file such annual and quarterly reports as the Commission may prescribe and in conformity with such rules as the Commission may promulgate. Rules 13a-1 and 13a-13 require the filing of annual and quarterly reports that comply with the Commission's Regulation S-X, which requires that financial statements be presented in conformity with GAAP. Rule 13b2-1 prohibits any person from, directly or indirectly, falsifying or causing to be falsified, any book, record or account subject to Section 13(b)(2)(A) of the Exchange Act.
The periodic reports filed by MicroStrategy between June 1998 and January 2000 were not in conformity with GAAP. Consequently, MicroStrategy violated Section 13(a) of the Exchange Act and Rules 13a-1 and 13a-13 thereunder. Respondents had important, albeit subordinate, roles in the company's financial reporting process and were aware of the contract signing practices discussed above. Respondents should have known that MicroStrategy's financial reports contained in its public filings were not accurate as a result of that practice. Thus, Respondents were a cause of MicroStrategy's violations of Section 13(a) of the Exchange Act and Rules 13a-1 and 13a-13 thereunder. Respondents also violated Rule 13b2-1 by permitting the company's books and records to inaccurately reflect the date on which contracts were fully executed.
The Commission finds that Respondents violated Exchange Act Rule 13b2-1 and were a cause of violations of Section 13(a) of the Exchange Act and Rules 13a-1 and 13a-13 thereunder.
ACCORDINGLY, IT IS HEREBY ORDERED, pursuant to Section 21C of the Exchange Act, that Respondents cease-and-desist from committing or causing any violations and any future violations of Exchange Act Rule 13b2-1 and from causing any violations and any future violations of Section 13(a) of the Exchange Act and Rules 13a-1 and 13a-13 thereunder.
By the Commission.
Jonathan G. Katz
1 The Commission simultaneously filed settled proceedings against the company, In the Matter of MicroStrategy, Inc. (Admin. Proc. No. 3-10388), and against certain of the company's executive officers, SEC v. Michael Jerry Saylor, Sanjeev Kumar Bansal and Mark Steven Lynch, (Civ. Action No. 1:00CV02995).
2 The findings herein are made pursuant to the Respondents' Offers and are not binding on any other person or entity in this or any other proceeding.
|Home | Previous Page||