SEC Charges Former Pareteum Executives with Accounting and Disclosure Fraud

The Securities and Exchange Commission (SEC) has taken legal action against former executives of Pareteum Corp., a New York-based telecommunications company, over their involvement in fraudulent revenue recognition practices. The charges specifically target the former Chief Financial Officer, Edward O’Donnell, and the former Chief Commercial Officer, Victor Bozzo. Additionally, the SEC has announced settled charges against Pareteum’s former Controller, Stanley Stefanski, for his role in the fraudulent scheme. It is worth noting that Pareteum Corp. had previously settled accounting and disclosure fraud charges filed by the SEC in 2021 and subsequently filed for bankruptcy in 2022.

According to the SEC’s complaint, from at least 2018 through mid-2019, Bozzo, O’Donnell, and Stefanski orchestrated a fraudulent scheme to recognize revenue stemming from non-binding purchase orders for SIM card services by Pareteum customers. Importantly, these customers had not committed to paying for the services unless they successfully sold them to downstream consumers. The complaint further alleges that Pareteum improperly recorded revenue for these purchase orders even before the SIM cards were delivered to the customers. This illicit revenue recognition scheme enabled Pareteum to significantly overstate its revenue by $12 million (60 percent) for fiscal year 2018 and by $27 million (91 percent) for the combined first and second quarters of 2019 in the financial statements it submitted to the SEC.

Scott A. Thompson, the Associate Director of Enforcement for the SEC’s Philadelphia Regional Office, remarked on the matter, stating, “As alleged in our complaint, Pareteum’s executives artificially inflated Pareteum’s revenue numbers to create the illusion of robust revenue growth. Investors should be able to trust public companies to issue truthful and accurate financial statements, and we will hold accountable any executives who abuse that trust and defraud investors.”

The SEC’s complaint, filed in the U.S. District Court for the Southern District of New York, charges Bozzo and O’Donnell with violations of antifraud provisions and other federal securities laws. The SEC seeks various remedies against them, including injunctive relief, disgorgement with prejudgment interest, civil penalties, and officer and director bars. The complaint also seeks an order for O’Donnell to reimburse Pareteum for certain compensation pursuant to Section 304 of the Sarbanes-Oxley Act of 2002. In a separate development, Stanley Stefanski has agreed to cease and desist from violating antifraud provisions and other provisions of federal securities laws. He has also consented to an officer and director bar, being denied the privilege of appearing and practicing before the SEC as an accountant, and is subject to future proceedings to determine any monetary relief.

Additionally, the U.S. Attorney’s Office for the Southern District of New York has announced criminal charges against Bozzo and O’Donnell in parallel to the SEC’s action.

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