Energy technology company FMC Technologies has agreed to pay $2.5 million to settle charges that it overstated the profits of one of its business segments by reducing the value of the liability it recorded for employee paid time off.
The U.S. Securities and Exchange Commission said two former FMC executives — Jeffrey Favret, the controller of the firm’s energy infrastructure segment, and his subordinate Steven Croft — manipulated the PTO liability to meet internal targets.
As a result, the SEC said in an administrative order, FMC was able to claim the segment’s operating profit as a percentage of revenue for the first quarter of 2013 had increased from 6.8% to 7.4% when it had actually declined to 6.7%.
In addition to the $2.5 million penalty to be paid by FMC, Favret agreed to pay a $30,000 penalty and Croft agreed to pay a $10,000 fine.
“Companies must accurately report their financial performance without regard to internal targets,” Stephanie Avakian, deputy director of the SEC’s Division of Enforcement, said in a news release. “Favret and Croft manipulated results to create the impression that the business was performing better than reality.”
According to the SEC, the improper accounting began after FMC in May 2012 acquired a private company that it renamed Automation and Control. The accrual of A&C’s PTO liability, the SEC said, had “a significant, negative impact on not only A&C’s January [2013] results, but on the energy infrastructure segment’s results as well.”
Under pressure from the head of the segment to improve earnings, Favret and Croft allegedly decided in February 2013 to change the accrual method for the liability, reducing it by almost $800,000. This method did not comply with FMC’s accounting policy and “resulted in an understatement of the required liability,” the SEC said.
The pressure allegedly continued during the April 2013 quarterly closing process, with the segment head directing Favret to “[s]ee if you can scratch out 100k somewhere.” To improve results, Favret and Croft then decided to eliminate A&C’s 2013 PTO accrual entirely, according to the SEC.
Both of the executives no longer work at FMC.
