HIT WITH SANCTIONS
SEC bans ex-Evoqua finance director from practicing as accountant
The Securities and Exchange Commission issued sanctions Tuesday against the former division finance director of a large Pittsburgh water treatment company, after regulators found he had “knowingly or recklessly” boosted the revenues of the company.
The SEC banned Imran Parekh, formerly of Evoqua, from appearing or practicing as an accountant for companies falling under the jurisdiction of the agency for at least a decade.
The sanctions come after a federal district judge last week issuedd interest against Mr. Parekh, and barred him from serving as an officer or director of a public company for 10 years.
The judge ordered Evoqua to pay $8.5 million in civil penalties in July.
That judge’s decision came at the end of a civil suit filed by the SEC last year against Mr. Parekh and Evoqua in federal court in Rhode Island, alleging 13 violations of federal securities laws that impacted the company’s 2017 initial public offering.
“Evoqua’s violations of the securities laws were the result of intentional or reckless conduct by Parekh, and negligent conduct at Evoqua’s corporate level in managing the financial reporting and accounting controls processes,” the SEC alleged in its initial complaint.
Reached by phone, Mr. Parekh declined to comment.
Last January, Evoqua was acquired by D.C. water technology company Xylem, in an all-stock deal valued at $7.5 billion. The company tends to the Point State Park fountain and water used by inhabitants of the Pittsburgh Zoo and PPG Aquarium.
According to court documents, Evoqua acquired Neptune Benson, another water treatment and filtration company based in Rhode Island, for $283 million in April 2016.
Neptune’s clients, which included large municipal drinking water systems, commercial swimming pools and theme parks, received customized treatment plans that could cost upward of $1 million.
After the acquisition, Mr. Parekh — who has never been registered as an accountant — was entrusted with managing Neptune’s revenue reporting as a division finance director.
From 2016 through August 2018, Mr. Parekh then inflated Evoqua’s quarterly and year-end revenues by improperly accounting for “bill-and-hold” transactions — a sales arrangement in which a seller bills a client for a product prior to shipping it, the SEC said.
Neptune, however, did not ship products before the end of the required reporting periods, and therefore failed to abide by accounting standards and federal securities laws, the SEC argued.
In all, the company improperly recognized at least 120 transactions, totaling nearly $36 million — about one-fifth of Neptune’s revenue from January 2016 to September 2018.
“The fraud was pervasive and infected most of Neptune’s largest transactions,” the agency alleged.
In 2016 and early 2017, Evoqua’s internal compliance and finance departments were notified of the accounting issues, but the company continued to publish the same inflated revenues as it sought an initial public offering in November 2017.
As a result, it reported nearly $12 million in additional revenue in its prospectus, a required disclosure document with details about the IPO. The company priced its initial offering at $18 per share, under the ticker AQUA, and finished up 16% in the first day of trading.
In October 2018, Evoqua’s stock price sank 35% after it announced a significant miss in earnings, which the SEC found was “exaggerated because of the material misstatements.”
The company finally acknowledged weaknesses in its internal control systems that December.
“This disclosure was too late, however, because the material weakness existed before … 2018 and, as a result, investors were misled,” the SEC said.
Mr. Parekh, who now lives in Hopkinton, Mass., left his employment at Neptune in August 2018, becoming chief financial officer of Adaptec Solutions, an automation and material handling company servicing the manufacturing industry. He then became a partner at Boston-based SAMMIK Consulting in December.
A SEC spokesperson declined to comment beyond the agency’s court filings.