SEC Charges Energy Storage Company, Former Executive in Fraudulent Scheme to Inflate Financial Results

The Securities and Exchange Commission today charged a California-based energy storage and power delivery product manufacturer and one of its former sales executives in a fraudulent revenue recognition scheme designed to inflate the company’s reported financial results.

According to the SEC’s order, Maxwell Technologies, Inc. prematurely recognized revenue from the sale of ultracapacitors - small energy storage and power delivery products - in order to better meet analyst expectations.  Van Andrews, a former Maxwell sales executive and corporate officer, allegedly inflated the company’s revenues by entering into secret side deals with customers and by falsifying records in order to conceal the scheme from Maxwell’s finance and accounting personnel and external auditors.  Maxwell’s former CEO David Schramm and former controller James DeWitt also were charged for failing adequately to respond to red flags that should have alerted them to the misconduct.

“Maxwell recorded revenue before it was actually earned in order to make investors believe that the company’s most important business segment, ultracapacitors, was growing faster than it really was,” said Charles Cain, Chief of the SEC Enforcement Division’s FCPA Unit.  “This action demonstrates our commitment to holding issuers and their executives accountable when they deny investors the ability to make investment decisions based on accurate financial information.”

The SEC’s order found that Maxwell and Andrews violated antifraud, books and records, and internal accounting controls provisions of the federal securities laws and that Andrews caused certain violations by Maxwell.  Both Maxwell and Andrews consented to the SEC’s order without admitting or denying the allegations and agreed to pay penalties of $2.8 million and $50,000, respectively.  Andrews also agreed to be barred from serving as an officer or director of a public company for five years.  Without admitting or denying the findings that they caused certain violations by Maxwell, Schramm agreed to pay a total of nearly $80,000 in disgorgement, prejudgment interest, and penalty and DeWitt agreed to pay a $20,000 penalty.  

The money collected in this proceeding will be used to establish a Fair Fund for the benefit of investors harmed by the accounting fraud.  Maxwell’s former CFO Kevin Royal, who was not charged with wrongdoing, has reimbursed the company $135,800 for incentive-based compensation he received during the period when the company was found to have committed accounting violations.  

The SEC’s investigation was conducted by James Valentino and Natalie Lentz with assistance from Kevin Lombardi.  The case was supervised by Tracy L. Price.