Regulation

Penthouse’s Guccione Settles with SEC

A $1 million dollar accounting problem caused big trouble for the former chief of the bare-all magazine.
Stephen TaubJanuary 26, 2005

The Securities and Exchange Commission settled charges against Penthouse magazine’s founder, Robert Guccione, who, without admitting or denying guilt, consented to the SEC’s findings. The charge was filed against Penthouse, now known as PHSL Worldwide Inc., in the U.S. District Court for the Southern District of New York.

The commission also charged Penthouse International Inc. and two individuals formerly associated with the company with accounting fraud, reporting violations, and violations of the Sarbanes-Oxley Act certification rules.

According to the SEC’s complaint, in the quarter ended March 31, Penthouse improperly included as revenue $1 million received as an up-front payment in connection with a five-year Web site management agreement.

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SEC officials asserted that the payment should not have been recognized in that quarter because the agreement was not actually signed until the following quarter. Further under generally accepted accounting principles, the $1 million payment should have been recognized as deferred revenue and amortized into income over the five-year life of the agreement.

By including the $1 million payment, Penthouse boosted its reported revenue by about 9 percent, to $12.72 million, and changed a quarterly net loss of $167,000 to a purported net profit of $828,000.

The SEC also asserts that the company’s 10-Q bore an unauthorized electronic signature of Guccione — who was Penthouse’s principal executive officer and principal financial officer at the time. The signature indicated that Guccione had reviewed and signed the filing and the accompanying Sarbanes-Oxley certification. “This representation was false,” the SEC stated in its complaint.