SEC Charges Former Executives of MusclePharm Corp. for Improper Revenue Recognition

The Securities and Exchange Commission today brought legal action against MusclePharm Corp., its former Executive Vice President of Sales and Operations, Brian H. Casutto, former Vice President of Sales, Matthew J. Zucco, and former contract Chief Financial Officer, Kevin R. Harris. The SEC alleged that the individuals had engaged in improper revenue recognition practices in an attempt to meet the revenue growth demands of the company’s former Chief Executive Officer, Ryan C. Drexler. The allegations include fraudulent schemes, premature revenue recognition for orders not finalized, and misclassifying customer credits as advertising expenses. These activities allegedly inflated the company’s publicly reported quarterly revenues by up to 25 percent and gross profits by as much as 49 percent. In response to the allegations, the defendants—Casutto, Zucco, and Harris—have consented to pay disgorgement and civil penalties, with Casutto and Harris also barred from serving as officers or directors of public companies for five years. Without admitting or denying the allegations, Drexler was individually charged with fraud and other securities law violations, seeking injunctive relief, civil penalties, reimbursement, and a ban on serving as an officer or director of a public company.