Risk & Compliance

Top OCZ Execs Charged With Accounting Fraud

Former CFO Arthur Knapp agrees to pay $130,000 to settle charges he failed to prevent the misclassification of sales discounts.
Matthew HellerOctober 7, 2015

The U.S. Securities and Exchange Commission has charged the former CEO and the former CFO of OCZ Technology Group with accounting violations that allegedly resulted in significant overstatement of the financial results of the now-bankrupt company.

According to the SEC, OCZ founder and ex-CEO Ryan Petersen engaged in a scheme to materially inflate OCZ’s revenues and gross margins from 2010 to 2012 by, among other things, mischaracterizing sales discounts as marketing expenses. The company, which sold computer memory storage and power supply devices, filed bankruptcy in November 2013.

The SEC also said in a civil complaint filed Tuesday that former finance chief Arthur Knapp “failed to implement sufficient internal accounting controls to prevent OCZ from misclassifying sales discounts as marketing expenses and significantly overstating its revenues and gross profit.”

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Shortly before its bankruptcy filing, OCZ restated its financial statements to decrease previously reported revenues by over $100 million from the second quarter of 2011 through the first quarter of 2013.

To settle the charges against him, Knapp agreed to pay a total of $130,000 in disgorgement, prejudgment interest, and civil penalties. The case against Petersen is continuing.

“CEOs and CFOs are responsible for reporting accurate financial information,” Antonia Chion, associate director of the SEC’s Division of Enforcement, said in a news release. “When those high-level executives participate in accounting fraud and failures, as we allege Petersen and Knapp have done, they will be held accountable.”

Between 2010 and 2012, OCZ raised over $200 million from investors through public equity offerings. “Much of this capital was raised through registration statements that incorporated false and misleading financial statements,” the SEC said.

According to the SEC, the alleged fraud involved “customer-based programs” (CBPs) that purportedly offered short-term marketing programs to customers. While sales discounts should be reported as reductions to revenue, OCZ allegedly recorded the CBPs as marketing expenses, which do not affect revenues.

“The picture that Petersen portrayed of OCZ’s operational and financial condition to investors was a far cry from its true operational and financial condition,” the SEC said.

The regulator said both Petersen and Knapp profited from the misstatements through sales of stock and bonuses.