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SEC Charges Sonus Networks With Misleading Revenue Projections

August 09, 2018

The Securities and Exchange Commission charged a cloud communications company and two executives with providing misleading quarterly revenue estimates. The company and executives agreed to pay over $1.9 million in penalties to settle the SECís charges.

According to the SECís order, Sonus Networks Inc.ís former CFO, Mark Greenquist, was aware of red flags which undermined the companyís first quarter 2015 revenue estimates. These red flags included that Sonus had pulled forward deals initially projected to close in 2015 in order to achieve its revenue guidance for the fourth quarter of 2014. Despite recognizing these risks, Greenquist said in a press release that he was comfortable with the consensus analyst revenue estimate of $74 million for the first quarter. About six weeks later, the company issued guidance of $74 million which reflected certain forecasted sales that had been improperly reclassified, due to pressure from Michael Swade, Sonusís Vice President of Global Sales, in order to support the $74 million estimate.

Seven days before the close of the quarter, Sonus announced that it was lowering its first quarter revenue estimate to between $47 million and $50 million. Following this announcement, Sonusís stock price dropped over 33 percent.

ďThe investing community expects that when companies choose to provide public financial projections, there is a reasonable basis underpinning those projections,Ē said Antonia Chion, Associate Director in the SECís Division of Enforcement. ďWhen a company ignores red flags or takes steps to make public financial projections inaccurate we will take appropriate action.Ē

Without admitting or denying the findings, Sonus, which following a merger conducts business as Ribbon Communications Inc., Greenquist and Swade consented to the entry of the SECís order, which found that they violated Section 17(a)(2) of the Securities Act of 1933, and that Ribbon violated, and Greenquist and Swade caused Ribbonís violations of, the reporting provisions of the Securities Exchange Act of 1934, and ordered Ribbon, Greenquist and Swade to pay penalties of $1.9 million, $30,000, and $40,000 respectively.

The SECís investigation was conducted by Jonathan Austin and Elizabeth Doisy, with assistance from Peter Rosario, Avron Elbaum, Nick Pilgrim, and Cheryl Crumpton, and was supervised by Deborah Tarasevich and Ms. Chion.

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