On Tuesday the Securities and Exchange Commission charged online financial-media company TheStreet; one of its former CFOs; and two executives of a former subsidiary, Promotions.com, with accounting fraud.

According to the complaints filed in federal court in Manhattan, TheStreet misstated its financials in 2008 when it improperly accounted for a series of transactions. Former CFO Eric Ashman “ignored basic accounting rules” in several transactions involving Promotions.com, a consumer promotion sweepstakes and contests business. The SEC said Ashman was responsible for the company prematurely recognizing revenue and using the percentage-of-completion method without meeting the regulatory requirements for doing so.

In one instance, in 2008, Ashman allowed Promotions.com to book $305,000 in sales before an engagement contract had been signed and prior to any “significant services” having been performed for the customer “beyond attending a kick-off meeting,” the SEC said in its complaint. Ashman ordered his staff to book the revenue even though he “knew or recklessly disregarded” the fact that Promotions.com had not completed the work required to earn it, according to the SEC.

The SEC also charged that in 2008 the co-presidents of Promotions.com — Gregg Alwine and David Barnett — entered into sham transactions with friendly counterparties that “had little or no economic substance.” In one example, in the third quarter of 2008, TheStreet inflated its revenue by recognizing $275,000 from what the SEC called a “roundtrip transaction” between Promotions.com and a company Alwine and Barnett held interests in, “[creating] inflated or entirely fake revenue,” the SEC said.

“In furtherance of this fraud, Alwine and Barnett altered documents, back-dated at least one contract, and obtained a false audit confirmation from a counterparty to support the notion that [Promotions.com] had performed work that generated revenue when, in fact, it had not,” according to the SEC complaint.

Since the subsidiary’s financial results were consolidated with those of TheStreet’s, the incidents of falsified and improperly recognized revenue led to “material misstatements” in the TheStreet’s quarterly and annual reports for fiscal year 2008, the SEC said. By the SEC’s account, TheStreet overstated its operating income (or understated its operating loss) by about 152%, or $1.7 million, that year.

The SEC also charged that after acquiring Promotions.com in 2007, TheStreet failed to implement a system of internal controls at the business unit, enabling the accounting fraud.

All three executives agreed to financial penalties and are barred from serving as officers and directors of public companies for a certain time: Alwine and Barnett for 10 years and Ashman for 3 years.

Ashman agreed to pay a $125,000 penalty and reimburse TheStreet $34,240.40 under the clawback provision (Section 304) of the Sarbanes-Oxley Act. Barnett and Alwine agreed to pay penalties of $130,000 and $120,000, respectively.

The SEC said the executives, as well as TheStreet, neither admitted nor denied the allegations, and agreed to be permanently enjoined from future violations of federal securities laws.

Ashman resigned from TheStreet in April 2009. He was subsequently finance chief of public-relations firm Text 100 and later The Huffington Post. In March 2011, Business Insider reported that Ashman was named CFO of Thrillist Media Group, a newsletter and e-commerce company targeted at urban men. Thrillist Media was co-founded by the son of Kenneth Lerer, who co-founded The Huffington Post with Arianna Huffington.

TheStreet purchased Promotions.com and a related business in August 2007 for $20.7 million and then sold Promotions.com to managers of the subsidiary in 2009 for $3.1 million. Promotions.com is now a portfolio company of Marshall Junction Partners, a private-equity firm and venture incubator. Alwine and Barnett are the managing partners of Marshall, according to the firm’s website.

TheStreet revised its 2008 10-K and disclosed the accounting improprieties at Promotions.com in 2010. It then revealed in March 2010 that the company was being investigated by the SEC.

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