A company that builds ships for the US Navy has agreed to pay out $24 million in SEC fines after a fraudulent revenue recognition scheme.
Austal USA, LLC, a Mobile, Alabama-based shipbuilder, and its Australia-based parent company, Austal Limited, have agreed to settle the SEC’s charges.
The SEC Complaint
The SEC’s complaint shows from at least January 2013 through July 2016, the Austal companies engaged in a scheme to artificially reduce the estimated cost of certain projects by tens of millions of dollars. The complaint further alleges Austal Limited prematurely recognized revenue and, as a result, met or exceeded analyst consensus estimates for earnings before interest and tax, known as EBIT, a key financial metric for the company.
The SEC says Austal Limited and Austal USA acted knowingly or with severe recklessness in connection with the scheme that was allegedly carried out by Austal USA’s former president, Craig D. Perciavalle, former director of financial analysis, Joseph A. Runkel, and former director of the Littoral Combat Ships program, William O. Adams, all of whom the SEC charged with accounting fraud in March 2023. That litigation is ongoing.
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Jason Burt, Director of the SEC’s Denver Regional Office, said:
“Transparency is a hallmark of financial reporting, and investors rely on companies to accurately and fairly represent their financial condition so that they can make informed decisions.
“The terms of this settlement make it clear that when companies manipulate their financial results to avoid falling short of analyst expectations – and those actions harm U.S. investors – the SEC will hold those companies accountable, wherever they are located.”
The SEC’s complaint, filed in the U.S. District Court for the Southern District of Alabama, charges Austal Limited and Austal USA with violations of the antifraud provisions of the Securities Exchange Act of 1934.
Austal Limited and Austal USA each consented to permanent injunctions, and Austal USA agreed to pay the penalty. The settlements are subject to court approval. The SEC plans to seek the creation of a Fair Fund for distribution of the penalty to harmed investors.
In a parallel matter, the U.S. Department of Justice, Fraud Section, announced settled charges against Austal USA.
