Michael Saylor, founder and chief executive of MicroStrategy Inc., and two other executives have agreed to pay $11 million to settle federal regulators’ allegations of civil accounting fraud.
Earlier this year, the Securities and Exchange Commission began investigating the accounting practices of MicroStrategy, Vienna, VA, a maker of software that analyzes data on marketing and customer relationship data.
The SEC inquired about MicroStrategy’s March 2000 financial restatement. The SEC had alleged that Saylor, along with chief operating officer Sanjeev Bansal and former chief financial officer Mark Lynch, who is still with the company, had overstated MicroStrategy’s revenue and earnings.
From the time of its first stock sale to the public in June 1998 through March this year, the SEC alleged, MicroStrategy overstated its revenue and earnings from sales of software and services. While the company’s financial reports showed positive net income during that time, it should have reported net losses, the SEC said.
MicroStrategy’s regulatory problems stemmed from SEC accounting guidelines issued last December, which were meant to crack down on overzealous projections and to give investors a more accurate picture of how a company is performing.
Saylor settled the charges in federal court in Washington without admitting or denying wrongdoing. The SEC also did not assess a monetary penalty against the company. However, its executives had to pay fines.
Saylor agreed on Thursday to repay $8.28 million, Bansal $1.63 million and Lynch $138,000 to shareholders to cover the amounts of the alleged violations. In addition, they each agreed to pay the SEC $350,000. The executives also agreed to refrain from future violations of federal securities laws.
MicroStrategy consented to a remedial administrative order that includes a commitment to rigorous contracting and accounting procedures. As previously announced, the company will also add a new, independent director with financial expertise to the audit committee of its board of directors. The SEC will have the right to veto MicroStrategy’s selection of that director.
“I am pleased that this agreement fully concludes the commission’s inquiry,” Saylor said. “By removing the diversions and uncertainties associated with this inquiry, senior management will be able to focus all of its time and attention on the exciting opportunities in the business intelligence market.”
Saylor said MicroStrategy has “worked hard to put in place numerous organizational and business measures to safeguard the integrity of our finances, and now we can turn with renewed energy and dedication to the marketplace.”
The SEC, however, said the investigation was continuing. That may mean charges are possible against MicroStrategy's auditor, PricewaterhouseCoopers, New York, which first certified MicroStrategy's books but then concluded that the accounting violated rules and forced the company to restate its earnings.
MicroStrategy’s software is part of many complete customer relationship management solutions. The company has partnership agreements with CRM vendors, including Xchange Inc., Boston; NCR Corp., Dayton, OH; YellowBrick Solutions, Morrisville, NC; Epsilon, Burlington, MA; and Donnelley Marketing, Greenwich, CT.
Michael Quint, spokesman for MicroStrategy, said these relationships “and all of our customers and partners will not be affected in any way by the settlement.”
