The U.S. Securities and Exchange Commission (SEC) charged three former C-suite executives at glove manufacturer Ironclad Performance with inflating revenues by improperly recognizing more than $6 million.
The SEC alleged CEO Jeffrey Cordes, CFO William Aisenberg and Senior Vice President Thomas Felton used "manipulative and deceptive" accounting schemes to inflate their revenues by up to 24% between 2015 and 2017.
"The defendants [...] artificially inflated Ironclad’s reported revenues by recognizing more than an aggregate of $3.3 million in revenue in the quarter before it was actually earned, and more than an aggregate of $3 million in revenue that should never have been booked," the SEC wrote in a civil complaint filed last Wednesday.
Cordes and Aisenberg have agreed to pay a civil penalty amounting to $173,437 respectively to settle their own charges, as litigation against Felton continues on.
From at least December 2015 through June 2017, the SEC alleged, Ironclad's former senior management falsely inflated revenues by recognizing revenue in the quarter before it was earned and recognizing revenue that was never earned because the products were never shipped to, or paid for, by a customer or were never ordered by a customer in the first place.
Instead, the products were either returned or bought back into Ironclad’s inventory and sold to different customers without ever reversing the original sale.
"The defendants' deceptive actions inflated Ironclad’s reported revenues, resulted in inaccurate books and records, and materially misstated the financial condition that Ironclad reported in its Forms 10-K, 10-Q, and 8-K," the SEC wrote in its summary.
In "at least the fourth quarter" of 2016, the SEC wrote, CFO Aisenberg "was aware that orders that were included in the reported revenues for that quarter were still in the warehouse after quarter-end; he even wrote an email to Cordes noting: '[w]hy aren’t these orders getting picked up, we are already at January 5th.'"
Ironclad filed for bankruptcy after disclosing the alleged fraud in July of 2017, at which point it was acquired by hardware distributor Brighton Best International, CFO reported.
Ironclad Performance, based in Farmers Branch, Texas, manufactured high-performance gloves for construction, manufacturing, oil, gas, and automotive work, CFO wrote. Cordes stepped in as CEO in early 2014, with Aisenberg coming onboard as CFO two months later.