Risk Management

ContinuityX Execs Charged With Faking Revenue

The CFO and CEO fabricated nearly all of the Internet services company's revenue using straw buyers and forged documents, says the SEC.
Matthew HellerOctober 1, 2015

The former CEO and former CFO of ContinuityX Solutions have been charged with defrauding investors in a private bond offering by fabricating nearly all of the Internet services company’s revenue using straw buyers and forged documents.

The U.S. Securities and Exchange Commission alleged Wednesday that David Godwin, the ex-CEO, and Anthony Roth, the ex-finance chief, filed regulatory reports that overstated ContinuityX’s revenue by tens of millions of dollars and used those fraudulent filings to raise $6.9 million from investors in the bond sale.

ContinuityX reported revenues of $27.2 million from April 2011 to September 2012, but according to the SEC, 99% of that revenue reflected fictitious sales. The company declared bankruptcy in February 2013.

Drive Business Strategy and Growth

Drive Business Strategy and Growth

Learn how NetSuite Financial Management allows you to quickly and easily model what-if scenarios and generate reports.

“We allege that Godwin and Roth cheated investors out of millions of dollars, depicting ContinuityX as a successful Internet service sales company, when in reality it was a sham from beginning to end, complete with phony customers and fake contracts,” said Timothy L. Warren, associate director of the SEC’s Chicago regional office.

The two executives allegedly enriched themselves through the fraud scheme, with Godwin receiving $1.3 million in compensation from ContinuityX and Roth receiving $351,800 in compensation and $456,098 in profits from sales of ContinuityX stock.

The company’s purported business involved marketing the Internet services of AT&T and other providers to end users. As part of the fraud scheme, the SEC said in a civil complaint, Godwin and Roth approached companies to become a straw buyer of those services, promising they would not have to pay for the services and would receive a portion of the commissions paid to ContinuityX by the providers.

During the fiscal year ended June 30, 2011, 40% of ContinuityX’s total reported commission revenue allegedly came from sales to a straw buyer owned by Roth.

The SEC said Godwin and Roth also prepared and submitted fake financial statements to AT&T to demonstrate the straw buyer’s supposed creditworthiness. On one occasion, Godwin allegedly told Roth to give a straw buyer a “great value” and not to “skimp.”

Godwin was indicted last year on criminal charges alleging he defrauded two companies that provided ContinuityX with $6 million in financing.