Atlanta-Based Pest Control Company, Former CFO Charged with Improper Earnings Management

The Securities and Exchange Commission today announced that Rollins Inc. agreed to pay $8 million to settle charges that it engaged in improper accounting practices in order to boost its publicly-reported quarterly earnings per share (EPS) to meet research analysts’ consensus estimates.

The SEC’s order finds that, in the first quarter of 2016 and the second quarter of 2017, Rollins, a nationwide provider of pest control services, made unsupported reductions to their accounting reserves in amounts sufficient to allow the company to round up reported EPS to the next penny. According to the order, the company’s then CFO, Paul Edward Northen, directed the improper accounting adjustments without conducting an analysis of the appropriate accounting criteria under generally accepted accounting principles (GAAP) and without adequately memorializing the basis for those accounting entries. The order also finds that Rollins made other accounting entries that were not supported by adequate documentation in multiple additional quarters from 2016 through 2018.

"This is the fourth action and the highest penalty to date against an issuer in connection with the Division of Enforcement’s highly successful and continuing EPS Initiative, which uses data analytics to uncover hard-to-detect accounting and disclosure violations by public companies," said Gurbir S. Grewal, Director of the SEC’s Division of Enforcement. "The SEC staff’s ever-increasing sophistication with data made today’s action possible and underscores that we will continue to pursue public companies that lack adequate accounting controls and engage in improper earnings management practices."

The SEC’s order finds that Rollins and Northen violated Sections 17(a)(2) and (3) of the Securities Act of 1933 and that Rollins violated the financial reporting, books and records, and internal controls provisions of the Securities Exchange Act of 1934. The order also finds that Northen violated Section 13(b)(5) and Rule 13b2-1 of the Exchange Act and further caused Rollins’ violations of the financial reporting, books and records, and internal controls provisions of the Exchange Act. Without admitting or denying the SEC’s findings, Rollins and Northen have agreed to cease and desist from future violations of the charged provisions and pay civil penalties of $8 million and $100,000, respectively.

The SEC’s investigation was conducted by Carolyn Winters and Tonya Tullis, with assistance from James Connor of the Trial Unit and Alex Lefferts of the Office of Investigative and Market Analytics, and was supervised by Carolyn Welshhans, Fuad Rana, and Kristen Dieter.