© 2016 The Texas Lawbook.
By Mark Curriden
(Sept. 27) – The U.S. Securities and Exchange Commission announced Tuesday that oil services company Weatherford International, which has substantial operations in Houston, has agreed to pay $140 million in penalties to settle charges that it inflated earnings by using deceptive income tax accounting.
Two senior accounting executives at the company also agreed to pay hundreds of thousands of dollars for their role in the scheme.
This is the second time in three years that Weatherford has been failed for illegal practices by the SEC. In 2013, the Swiss-based energy firm paid $152 million to the SEC and the U.S. Justice Department, which accused Weatherford of violating the Foreign Corrupt Practices Act.
The SEC claims that Weatherford fraudulently lowered its year-end provision for income taxes by $100 million to $154 million each year so the company could better align its earnings results with its earlier-announced projections and analysts’ expectations.
“Weatherford denied its investors accurate and reliable financial reporting by allowing two executives to choose their own numbers when the actual financial results fell short of what was previously disclosed to analysts and the public,” SEC Enforcement Division Director Andrew Ceresney said in a written statement.
“This case is part of our continued focus on financial reporting and disclosure fraud,” Ceresney said.
The two executives – Weatherford’s vice president of tax James Hudgins and company tax manager Darryl Kitay – made “numerous post-closing adjustments to fill gaps and meet its previously disclosed effective tax rate (ETR), which is the average rate that a company is taxed on pre-tax profits,” according to the SEC.
The SEC states that Weatherford regularly touted its favorable ETR to analysts and investors as one of its key competitive advantages, and the fraud created the misperception that Weatherford’s designed tax structure was far more successful than reality.
As a result, Weatherford restated its financial filings three separate times in 2011 and 2012.
The settlement requires Hudgins to pay $334,067 in disgorgement, interest, and penalty. He is banned from serving as an officer or director of a public company for five years. Kitay agreed to pay a $30,000 penalty. Both men are suspended from appearing and practicing before the SEC as accountants, which includes not participating in the financial reporting or audits of public companies.
The 2013 federal charges accused Weatherford of authorizing bribes and kickbacks to officials in the Middle East in order to obtain United Nation’s oil-for-food contracts.
Officials with Weatherford declined to comment.
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