The U.S. Securities and Exchange Commission (SEC) obtained final judgments against Edward O’Donnell and Victor Bozzo, the former Chief Financial Officer and former Chief Commercial Officer, respectively, of New York–based telecommunications company Pareteum Corp., for their roles in an alleged revenue recognition scheme.
The complaint, filed in the U.S. District Court for the Southern District of New York, charged O’Donnell and Bozzo with violating Section 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. The complaint also charged O’Donnell with violating Section 13(b)(5) of the Exchange Act and Rules 13a-14, 13b2-1, and 13b2-2 thereunder, as well as with aiding and abetting Pareteum’s violations of Sections 13(a), 13(b)(2)(A), and 13(b)(2)(B) of the Exchange Act and Rules 12b-20, 13a-1, 13a-11, and 13a-13 thereunder.
The complaint alleged that Pareteum was a telecommunications “Software as a Service” company that offered various products including Subscriber Identity Module (“SIM”) cards, WiFi service, and a Cloud-based platform. Pareteum’s customers were telecommunications businesses that contracted with Pareteum for services and materials, and then sold those products directly to downstream users. Most of Pareteum’s customers were not obligated to pay the purchase order amounts until all the SIM cards had been shipped to them, the platform supporting the SIM cards had been set up, customized, and confirmed operational, and the SIM cards were sold to downstream users and officially activated.
Under GAAP, and as disclosed in Pareteum’s financial statements, revenue from Pareteum’s contracts with customers was to be recognized in accordance with ASC Topic 606, “Revenues from Contracts with Customers” (“ASC 606”). The central principle of ASC 606 revenue is recognized when the customer gains control over the products or services they’ve paid for. Accounting Standards Codification (“ASC”) are accounting standards defined by the Financial Accounting Standards Board (“FASB”). Since July 2009, the ASC has been the single official source of authoritative, nongovernmental U.S. generally accepted accounting principles.
Generally Accepted Accounting Principles (“GAAP”) refers to a common set of accounting rules, requirements, and practices issued by the FASB and the Governmental Accounting Standards Board (“GASB”). Public companies in the U.S. are required to follow GAAP when creating their financial statements.
O’Donnell and Bozzo, along with other Pareteum executives, engaged in a fraudulent scheme to recognize revenue from Pareteum customers’ non-binding purchase orders for SIM card services, despite knowing that the customers had not committed to paying for the services and that the SIM cards had not yet been shipped, per the SEC’s allegations.
This purported misconduct allowed Pareteum to materially overstate its revenue by $12 million – or 60 percent – for fiscal year 2018 and by $27 million – or 91 percent – for the first and second quarters of 2019 combined in its financial statements filed with the SEC.
In a parallel action, the U.S. Attorney’s Office for the Southern District of New York filed criminal charges against Bozzo and O’Donnell. On May 22, 2024, both pleaded guilty. On August 26, 2024, Bozzo was sentenced to a prison term of one year and one day and was ordered to pay forfeiture of $225,000. On October 9, 2024, O’Donnell was also sentenced to a prison term of one year and one day and was ordered to pay forfeiture of $60,000.
Bozzo and O’Donnell consented to entries of final judgments permanently enjoining them from violating the charged provisions, prohibiting them from serving as officers or directors of publicly traded companies, and ordering them to pay disgorgement of $225,000 and $60,000, respectively, which shall be deemed satisfied by the forfeiture ordered against them in the parallel criminal proceedings.
Charged in a Revenue Recognition Scheme?
Nationally acclaimed SEC defense attorney David Chase, Esq. of the Law Firm of David R. Chase, represents those under SEC investigation for various alleged securities law offenses, including accounting fraud, insider trading, market manipulation, crypto fraud and investment advisor violations. If you have received a SEC subpoena or are under SEC investigation and are seeking strategic advice from a knowledgeable SEC lawyer, contact David at: 800-760-0912 or e-mail him at: david@davidchaselaw.com. Visit the Firm’s website for more information on SEC investigations at: www.securitiesfrauddefense.net.
