SEC: Sarbox Smoked Out Biotech’s Misdeeds

The SEC charged that Cambrex failed to reconcile its intercompany accounts until its executives were faced with the executive-officer-certification...
Stephen TaubJune 22, 2007

The Securities and Exchange Commission has settled charges against Cambrex Corp., a small biotech company, for improperly reconciling intercompany accounts.

The SEC charged that Cambrex failed to reconcile the accounts until its executives were faced with the new executive-officer-certification requirements under the Sarbanes-Oxley Act of 2002. “Although aware of the intercompany imbalance issue, Cambrex failed to adequately staff its internal accounting function and repeatedly failed to undertake or follow through with needed corrective measures,” the SEC added in its complaint.

From at least 1997 through 2001, Cambrex failed to properly reconcile its related-company transactions, resulting in an imbalance of about $17.1 million, the SEC charged. Of that amount, about $3.5 million was erroneously reflected as income, when in fact it should have been accounted for as an operating expense, according to the complaint. Further, Cambrex allegedly couldn’t determine whether another $2.6 million was also improperly booked as income, according to the SEC.

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As a result, Cambrex issued erroneous quarterly and annual reports, the regulator charged. In January 2003, the company restated its financials for the five-year period, reducing net income after taxes by about $5 million. The company, which did not admit or deny the commission’s findings, allegedly violated the recordkeeping and internal-controls provisions of federal securities laws.

The SEC asserted that the imbalance in the intercompany accounts happened at first because Cambrex failed to reconcile them on a monthly basis. “As the intercompany imbalance grew, Cambrex executives knew that a historical reconciliation needed to be performed and were warned by Cambrex’s outside auditors that the imbalance could have an impact on earnings,” the commission added.

The regulator says that in discussing the settlement, it weighed the company’s attempts to remedy the situation and its cooperation during the commission’s probe.