Accounting & Tax

Former EasyLink CFO Settles Charges

During the period when EasyLink improperly recognized and reported advertising revenue from barter transactions, SEC Chairman William Donaldson was...
Stephen TaubApril 11, 2005

The Securities and Exchange Commission has announced a settlement with EasyLink Services Corp. and its former chief financial officer, Debra L. McClister, for their failure “to apply the appropriate accounting standards” in 2000.

During the period in question, SEC Chairman William Donaldson was a director of the company and served on the audit committee. He also sat on the board’s compensation committee from 1999, after the company went public, until late 2002, when he was offered the SEC job, reported the Associated Press.

The commission also noted that Donaldson “cooperated willingly and fully in the investigation” but did not otherwise participate in any matter involving EasyLink. Instead, Daniel Nathan, the chief of the Commodity Futures Trading Commission’s Office of Cooperative Enforcement, acted as a special advisor to monitor the SEC staff during the investigation.

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EasyLink was formed in 1995 by investment banker Gerald Gorman, a 12-year veteran of Donaldson, Lufkin & Jenrette, which Donaldson co-founded. The company went public in 1999 as Mail.com, and the stock zoomed to a high of $271 that year. It now trades for less than a buck.

The SEC found that EasyLink improperly recognized and reported advertising revenue from barter transactions in 2000 as a result of its failure to apply the appropriate accounting standards. As a result, the company overstated its revenue for fiscal 2000 by $4.85 million, or 8.6 percent.

The commission asserted that McClister knew about the barter deals, failed to account for them properly, failed to inform the outside auditors that the company was engaged in cash barter transactions, and failed to ensure that the company’s financial statements were accurate.

EasyLink and McClister each agreed, without admitting or denying the findings in the SEC order, to cease and desist from violating or causing violations of the issuer reporting, record-keeping, and internal control provisions of the federal securities laws. McClister also agreed not to practice as an accountant for two years.