Dec. 18 (Bloomberg) -- TheStreet Inc., operator of the financial website TheStreet.com, and three former executives settled a U.S. Securities and Exchange Commission investigation of accounting fraud at the company in 2008.
The SEC filed three complaints in federal court in Manhattan today against TheStreet, ex-Chief Financial Officer Eric Ashman and two former co-presidents of a onetime unit of the company, Gregg Alwine and David Barnett. The defendants agreed to settle without admitting or denying the claims, the SEC said in a statement.
TheStreet, co-founded in 1996 by CNBC host Jim Cramer, reported in 2010 that the SEC was investigating the accounting at its former Promotions.com unit. TheStreet acquired the online promotional agency for $20.7 million in August 2007 and sold it to a company owned by Promotions.com managers for $3.1 million in December 2009, according to a company filing.
“Alwine and Barnett used crooked tactics, Ashman ignored basic accounting rules, and TheStreet failed to put controls in place to spot the wrongdoing,” Andrew Calamari, director of the SEC’s New York regional office, said today in a statement.
Cramer, who is on TheStreet’s board, is the fourth-largest holder of the company’s shares, according to data compiled by Bloomberg.
“TheStreet cooperated with the SEC over the course of its investigation, and we conducted our own comprehensive review in conjunction with the investigation,” Elisabeth DeMarse, TheStreet’s chief executive officer, said today in an e-mailed statement. “Upon learning of the irregularities, we promptly reported the matter to the SEC.”
The settlement doesn’t require TheStreet to pay any monetary penalty, DeMarse said.
“We are pleased to put this matter behind us,” she said.
The SEC allegations were connected to improper revenue recognition at the online promotion unit, which the SEC identified as “Subsidiary A.” Before it was acquired by TheStreet, the closely held company wasn’t required by U.S. securities law to maintain accurate financial records, the SEC said.
After the 2007 acquisition, the promotions unit improperly reported revenue from phony transactions, used a “percentage of completion” method of recognizing revenue without meeting the requirements for doing so and prematurely booked sales before completing any work, the SEC said.
When the financial reports of Promotions.com were consolidated with TheStreet’s, the improper revenue caused misstatements in the parent’s regulatory filings, the SEC said. In 2010, TheStreet restated its 2008 financial results and disclosed improper revenue recognition at its subsidiary, the agency said.
Ashman agreed to pay a $125,000 penalty and to reimburse TheStreet $34,240, the SEC said. He will be barred from acting as an officer or director of a public company for three years. Barnett agreed to pay $130,000 and Alwine $120,000. Both will be barred from serving as officers or directors for 10 years, the SEC said.
The three former executives and TheStreet agreed to an order barring them from violating the securities laws in the future, according to the SEC.
TheStreet fell 1 cent to $1.64 at 4 p.m. New York time in Nasdaq Stock Market trading.
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The cases are SEC v. TheStreet Inc., 12-cv-9187; SEC v. Ashman, 12-cv-9189; and SEC v. Alwine, 12-cv-9191, U.S. District Court, Southern District of New York (Manhattan).
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