SEC Charges Former Pareteum Executives with Accounting and Disclosure Fraud

The Securities and Exchange Commission (SEC) has announced charges against former Pareteum Corp executives, Chief Financial Officer Edward O’Donnell and Chief Commercial Officer Victor Bozzo, for their involvement in fraudulent revenue recognition practices. The SEC also revealed that Stanley Stefanski, Pareteum's former Controller, has settled charges in connection with the same scheme.

This legal action follows Pareteum's previous settlement regarding accounting and disclosure fraud charges in 2021, as well as the company's subsequent bankruptcy filing in 2022.

According to the SEC's complaint, Bozzo, O’Donnell, and Stefanski were engaged in a fraudulent scheme spanning from at least 2018 through mid-2019. The executives allegedly recognized revenue from non-binding purchase orders for SIM card services provided by Pareteum. However, these orders were conditional on customers' ability to sell these services to downstream consumers. Despite being aware of this condition, the executives recognized revenue prematurely, before the SIM cards were even delivered to the customers.

This improper revenue recognition resulted in Pareteum materially overstating its revenue by a staggering $12 million, which accounted for 60 percent of its reported revenue for fiscal year 2018. Furthermore, it inflated revenue by $27 million, equivalent to 91 percent of its revenue for the first and second quarters of 2019, as per the financial statements filed with the SEC.

Scott A. Thompson, the Associate Director of Enforcement for the SEC’s Philadelphia Regional Office, emphasized the importance of trust and transparency in financial reporting. He stated, "Investors should be able to trust public companies to issue truthful and accurate financial statements, and we will hold accountable any executives who abuse that trust and defraud investors."

The SEC’s complaint, filed in the U.S. District Court for the Southern District of New York, charges Bozzo and O’Donnell with violating federal securities laws, including antifraud provisions. The SEC seeks injunctive relief, disgorgement with prejudgment interest, civil penalties, and officer and director bars against both individuals. Additionally, the complaint aims to order Edward O’Donnell to reimburse Pareteum for certain compensation in accordance with Section 304 of the Sarbanes-Oxley Act of 2002.

Stanley Stefanski, the former Controller, has agreed to cease and desist from violating antifraud provisions and other federal securities laws. He will also face an officer and director bar and will be denied the privilege of appearing and practicing before the SEC as an accountant. Further proceedings will be conducted to determine any monetary relief for Stefanski.

In parallel with the SEC's action, the U.S. Attorney’s Office for the Southern District of New York has announced criminal charges against Bozzo and O’Donnell, underscoring the seriousness of the alleged misconduct.

This development serves as a reminder of the SEC's commitment to enforcing transparency and integrity in financial reporting, holding corporate executives accountable for their actions, and safeguarding the interests of investors.