SEC Charges Dialysis Provider and Three Former Senior Executives with Revenue Manipulation Scheme

The Securities and Exchange Commission today charged American Renal Associates Holdings, Inc. (ARA), a provider of dialysis services through clinics across the country, with engaging in a revenue manipulation scheme that resulted in the restatement of several years of financial reporting. The SEC also charged two of ARA’s former chief financial officers, Jonathan Wilcox and Jason Boucher, and former ARA Controller, Karen Smith, for their misconduct related to the scheme.

According to the SEC’s complaint, from 2017 through at least November 2018, ARA improperly manipulated certain revenue adjustments, called "topsides," in order to embellish ARA’s financial performance. Topside adjustments are used to reflect actual cash received from insurance companies for patient services and update initial estimates of payments ARA expected to receive. As alleged in the complaint, ARA improperly recognized topside adjustments in order to hit targets on two key financial metrics. The complaint further alleges that this scheme included the use of a revenue "cookie-jar," whereby ARA identified topside adjustments that should properly be recorded, but did not actually record them until the revenue adjustments were needed to meet targets set for the two key financial metrics. Finally, the defendants allegedly misled ARA’s auditor in order to prevent discovery of ARA’s improper accounting practices. In September 2019, ARA issued restated financial statements which, among other things, reflected that it had overstated net income by more than 30% for 2017 and by more than 200% for the first three quarters of 2018.

"ARA and its senior executives allegedly engaged in an extensive revenue manipulation scheme for nearly two years," said Jennifer S. Leete, Associate Director of the SEC’s Division of Enforcement. "The SEC will continue to hold companies and their executives responsible for providing investors with misleading financial information."

The SEC’s complaint, filed in the Southern District of New York, charges the defendants with violations of the antifraud, reporting, books and records, and internal accounting control provisions of the federal securities laws. The complaint also charges Wilcox, Boucher, and Smith with making false statements to auditors. Without admitting or denying the allegations in the complaint, ARA has agreed to settle by consenting to a permanent injunction and a $2 million civil penalty. The settlement is subject to court approval. The SEC seeks permanent injunctive relief, disgorgement with prejudgment interest, civil penalties, and officer and director bars against Wilcox, Boucher, and Smith. The SEC also seeks reimbursement pursuant to Section 304(a) of the Sarbanes-Oxley Act from Wilcox and Boucher.

The SEC’s investigation was conducted by Pei Chung, Jonathan Austin, and Brian Palechek.  The investigation was supervised by Deborah A. Tarasevich and Ms. Leete. The SEC’s litigation will be led by Christopher Bruckmann under the supervision of David J. Gottesman.