Hertz Global Holdings agreed to pay a fine of $16 million to settle civil charges with the Securities and Exchange Commission over financial misstatements, including $235 million in reported income that didn’t comply with generally accepted accounting principals.
“From at least February 2012 through March 2014, Hertz’s public filings materially misstated pretax income because of accounting errors made in a number of business units, and over multiple reporting periods,” the SEC said in a cease-and-desist letter.
Among the alleged improprieties, Hertz, for years, understated allowance-related expense and inflated income due to inappropriate estimation methodologies, it did not adequately disclose to investors the effects of its decision in 2013 to hold the rental cars in its U.S. fleet longer, and it reaffirmed its financial guidance despite internal analysis that indicated it was based on inaccurate information. One misstatement, valued at $48 million, was related to its method for offsetting expenses for vehicles damaged during rental, or “subrogation.”
The SEC said the accounting errors were made in a “pressured corporate environment, where, in certain instances, there was an inappropriate emphasis on meeting internal budgets, business plans, and earnings estimates.”
Hertz restated financial results for 2011, 2012, and 2013 and set “an inconsistent and sometimes inappropriate tone at the top” that might have contributed to the errors, which occurred across its business units. It also identified weaknesses in internal controls over financial reporting.
In accepting the settlement offer, the SEC said it considered the “remedial acts promptly undertaken” by Hertz. The company’s CEO and President Mark Frissora stepped down in September 2014 citing personal reasons. The company replaced a number of senior and lower level employees since. The regulator said Hertz representatives also met with its staff on “multiple occasions, voluntarily providing information likely to be of interest.”
The company neither denied nor admitted to the SEC’s findings.