SEC Charges Lighting Products Company and Four Executives with Accounting Violations

Litigation Release No. 24915 / September 24, 2020

Accounting and Auditing Release No. 4170 / September 24, 2020

Securities and Exchange Commission v. Revolution Lighting Technologies, Inc., et al., No. 3:20-cv-01440-CSH (D. Conn. filed September 24, 2020)

The Securities and Exchange Commission today charged Connecticut-based Revolution Lighting Technologies, Inc., for an accounting fraud that falsely inflated its reported revenues over a four-year period. Four Revolution Lighting executives-CEO Robert LaPenta, former CFO James DePalma, and two former CFOs of the firm's largest division, Allen Garner and Daniel O'Neal- were also charged for their roles in causing Revolution Lighting to misreport its revenue. All have agreed to settlements to resolve the claims against them.

According to the SEC's complaint, from late 2014 to mid-2018, Revolution Lighting improperly recognized revenue for sales much earlier than permitted by accounting rules or the firm's own written revenue-recognition policies. The complaint alleges that as Revolution Lighting approached the end of each fiscal quarter, LaPenta and DePalma pressured Garner, O'Neal and sales personnel to improperly record anticipated future sales as current "bill and hold" sales to make up for revenue shortfalls. The company then allegedly recognized revenue from the uncompleted sales. On multiple occasions, Garner allegedly concealed this practice by providing backdated documents related to "bill and hold" sales to the company's auditor. As alleged, DePalma kept careful track of Revolution Lighting's reporting of bill and hold transactions through a "bill and hold schedule" that Garner, and later O'Neal, prepared. The complaint alleges that the defendants failed to disclose that "bill and hold" sales represented a significant portion of Revolution Lighting's revenue or that the company was materially deviating from its stated revenue-recognition policies.

The SEC's complaint, filed in federal court in Connecticut, alleges that the defendants violated antifraud, books and records, internal controls, and reporting provisions of the securities laws. In addition, the complaint alleges that LaPenta and DePalma made false certifications in Revolution Lighting's filings, that DePalma, Garner, and O'Neal circumvented accounting controls or falsified records, and that Garner misled Revolution Lighting's auditor. Revolution Lighting and Garner were charged with violating Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder and Section 17(a) of the Securities Act of 1933, and LaPenta, DePalma, and O'Neal were charged with violating Securities Act Sections 17(a)(2) and (3). In addition, Revolution Lighting was charged with violating, and all other defendants were charged with aiding and abetting, Exchange Act Sections 13(a), 13(b)(2)(A), and 13(b)(2)(B) and Rules 12b-20, 13a-1, 13a-11, and 13a-13; LaPenta was charged with violating Exchange Act Rules 13a-14 and 13b2-1; DePalma, Exchange Act Section 13(b)(5) and Rules 13a-14 and 13b2-1; Garner, Exchange Act Section 13(b)(5) and Rules 13b2-1 and 13b2-2; and O'Neal, Exchange Act Section 13(b)(5) and Rule 13b2-1.

Without admitting or denying the SEC's allegations, Revolution Lighting, LaPenta, DePalma, Garner, and O'Neal consented to judgments permanently enjoining them from future violations of the charged provisions and requiring them to pay penalties of $1.25 million, $192,768, $100,000, $25,000, and $25,000, respectively. Garner also agreed to be prohibited from acting as a public company officer or director for five years. The settlements are subject to court approval.

The SEC's case is being handled by Peter Moores, Ryan Murphy, Trevor Donelan, Marc Jones, and Michele T. Perillo of the Boston Regional Office. The SEC's investigation is ongoing.