Securities and Exchange Commission (SEC) officials said Pennsylvania-based Healthcare Services Group (HCSG) has reached an agreement to pay $6 million to settle charges levied against the company.
According to the SEC, Healthcare Services Group engaged in accounting and disclosure violations enabling the company to report inflated quarterly earnings per share (EPS) meeting research analysts’ consensus estimates for multiple quarters.
“HCSG reported EPS that met analyst estimates for multiple quarters as a result of accounting violations that were uncovered by the Division of Enforcement’s ongoing EPS Initiative,” Gurbir Grewal, director of the SEC’s Division of Enforcement, said. “We will continue to leverage our in-house data analytic capabilities to identify improper accounting and disclosure practices that mask volatility in financial performance and continue to hold public companies and their executives accountable for their violations.”
This is the third action stemming from the Division of Enforcement’s EPS Initiative that uses risk-based data analytics to uncover potential accounting and disclosure violations.
Per the SEC, in 2014 and 2015, HCSG failed to timely accrue for and disclose material loss contingencies related to settlement of private litigation against the company — a requirement of U.S. Generally Accepted Accounting Principles.
According to the SEC order, HCSG’s former CFO John C. Shea failed to direct the recording or disclosure of the loss contingencies on a timely basis and HCSG’s Controller, Derya D. Warner, made other accounting entries not supported by adequate documentation as required by company policies.
“HCSG repeatedly failed to record loss contingencies related to litigation settlements despite mounting evidence that such liability was probable and reasonably estimable while misleading investors by reporting inflated net income and consistent EPS growth,” Anita B. Bandy, associate director of the SEC’s Division of Enforcement, said.