U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 25860 / September 28, 2023
Securities and Exchange Commission v. Edward O'Donnell and Victor Bozzo, No. 23-civ-8543 (SDNY filed September 28, 2023)
SEC Charges Former Pareteum Executives with Accounting and Disclosure Fraud
The Securities and Exchange Commission today announced charges against the former Chief Financial Officer, Edward O'Donnell, and the former Chief Commercial Officer, Victor Bozzo, of New York-based telecommunications company Pareteum Corp. for engaging in fraudulent revenue recognition practices. The SEC also announced settled charges against Pareteum's former Controller, Stanley Stefanski, for his role in the scheme. Pareteum previously settled to accounting and disclosure fraud charges filed by the SEC in 2021 and filed for bankruptcy in 2022.
According to the SEC's complaint, from at least 2018 through mid-2019, Bozzo, O'Donnell, and Stefanski engaged in a fraudulent scheme to recognize revenue from Pareteum customers' non-binding purchase orders for SIM card services, despite knowing that the customers had not committed to paying for the services unless they were able to sell the services to downstream consumers. The SEC's complaint also alleges that, because of these executives' misconduct, Pareteum improperly recognized revenue for the purchase orders before the SIM cards were shipped to the customers. This improper revenue recognition scheme allowed Pareteum to materially overstate its revenue by $12 million - or 60 percent - for fiscal year 2018 and by $27 million - or 91 percent - for the first and second quarters of 2019 combined in its financial statements filed with the SEC.
The SEC's complaint, filed in federal district court in New York, charges Bozzo and O'Donnell with violating the antifraud provisions of Section 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. The complaint also charges O'Donnell with violating Section 13(b)(5) of the Exchange Act and Rules 13a-14, 13b2-1, and 13b2-2 thereunder, as well as aiding and abetting Pareteum's violations of Sections 13(a), 13(b)(2)(A), and 13(b)(2)(B) of the Exchange Act and Rules 12b-20, 13a-1, 13a-11, and 13a-13 thereunder. The complaint seeks injunctive relief, disgorgement and prejudgment interest, civil penalties, and officer and director bars against Bozzo and O'Donnell, and also seeks to order O'Donnell to reimburse Pareteum certain compensation pursuant to Section 304 of the Sarbanes-Oxley Act of 2002. Separately, the SEC issued an order finding that Stefanski willfully violated Section 17(a) of the Securities Act and Section 10(b) of the Exchange Act and Rules 10b-5(a) and (c) and 13b2-2 thereunder; willfully aided and abetted and caused O'Donnell's and Pareteum's violations of Section 10(b) of the Exchange Act and Rule 10b-5 thereunder; and willfully aided and abetted and caused Pareteum's violations of Sections 13(a), 13(b)(2)(A), and 13(b)(2)(B) of the Exchange Act and Rules 12b-20, 13a-1, 13a-11, and 13a-13 thereunder. Stefanski agreed to settle the charges and to cease and desist from committing or causing any violations and any future violations of those provisions, to an officer and director bar, to be denied the privilege of appearing and practicing before the SEC as an accountant, and to be subject to future proceedings to determine any monetary relief.
In a parallel action, the U.S. Attorney's Office for the Southern District of New York today announced criminal charges against Bozzo and O'Donnell.
The SEC's investigation was conducted by Megan Ryan under the supervision of Julia C. Green, Scott A. Thompson, and Nicholas P. Grippo of the Philadelphia Regional Office. The litigation will be handled by Karen Klotz and Judson Mihok, under the supervision of Gregory R. Bockin. The SEC appreciates the assistance of the U.S. Attorney's Office for the Southern District of New York and the FBI.