Engine maker Power Solutions International has agreed to pay $1.7 million to settle charges that its former CEO and two other former executives fraudulently inflated revenue by almost $25 million to meet its guidance and analysts’ estimates.

The U.S. Securities and Exchange Commission said the alleged accounting fraud resulted in PSI issuing materially misstated financial statements in its public filings for every period from the fourth quarter of 2014 through the fourth quarter of 2015.

The three former executives — CEO Gary Winemaster, VP of Sales Craig Davis, and James Needham, general manager for industrial, heavy products — orchestrated the transactions with customers that resulted in the accounting misstatements. All three were charged in July 2019 with securities fraud by the SEC and Department of Justice.

“Power Solutions deprived investors of truthful information about its financial health by fraudulently recording revenue to meet revenue targets and projections,” Kathryn Pyszka, associate regional director of the SEC’s Chicago Regional Office, said in a news release.

Chicago-based PSI sells engines to manufacturers of industrial equipment, trucks, and buses. According to the SEC, its revenue targets became increasingly difficult to meet in 2015 when the price of oil was depressed.

To achieve those revenue targets, the commission said, Winemaster, Needham and Davis caused PSI to fraudulently recognize revenue for purported sales of products that the customer had not yet agreed to accept; that had not yet been completed to customer specifications; and for which the three executives had negotiated improper “bill and hold” arrangements.

They also allegedly misled employees of PSI’s accounting department,or hid information from them, to ensure that the company recognized the inflated revenue.

In one transaction cited by the SEC, a PSI sales rep, at Davis’s direction, offered extended payment terms to incentivize a customer to take delivery of 30 engines early so PSI could “hit some numbers for 2014.” Davis also allegedly approved the customer’s request to cover the cost of storing the engines at an off-site, saying PSI needed to do the deal “as we are still 4 million short” of the quarterly sales target.

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