Risk & Compliance

Penthouse Retouched Profits, Says SEC

Publishing company and two individuals allegedly tucked $1 million in revenue where it didn't belong.
Stephen TaubMay 11, 2007

The Securities and Exchange Commission has settled charges with publishing company Penthouse International and two individuals regarding allegations of accounting fraud and filing a false report.

The SEC allegations against the company, former executive vice president and director Charles Samel, and onetime shareholder Jason Galanis concern Penthouse’s March 31, 2003, quarterly report.

According to the complaint, Penthouse improperly included as revenue $1 million it had received up front in connection with a five-year website management agreement. Including that payment increased Penthouse’s reported revenue by about 9 percent and changed a quarterly net loss of $167,000 to a purported net profit of $828,000, according to the SEC.

The commission also charged that Penthouse’s quarterly report was materially misleading in several other respects. Notably, the SEC asserted, the report bore an unauthorized electronic signature of Robert C. Guccione, the company’s principal executive officer and principal financial officer, represented that Guccione had reviewed and signed the report and the accompanying Sarbanes-Oxley certification.

This representation was false, the SEC maintained, adding that Guccione had not seen or approved the quarterly filing or the certification.

The complaint also asserted that Penthouse’s auditors and outside counsel also had not reviewed the filing, a fact that also was not disclosed.

The commission alleged that Samel and Galanis prepared and filed the false report, and that they did so knowingly, or with reckless disregard, as to whether Guccione had seen or approved it, whether the company’s auditor had performed its required review, and whether it would be improper to include the $1 million payment as revenue.

Without admitting or denying the SEC allegations, Penthouse, Samel and Galanis each consented to a judgment enjoining them from further violations of the relevant securities laws.

Samel and Galanis each also agreed to a five-year officer-and-director bar and to pay a civil penalty of $60,000.