On September 24, 2019, Comscore, Inc. (“Comscore”) agreed to pay $5 million to settle SEC charges stemming from a fraudulent revenue recognition scheme that the company’s former CEO allegedly directed from February 2014 through February 2016. Comscore provides media measurement and analytics data to enterprises, media advertising agencies, and publishers. According to the SEC’s order, Comscore overstated its publicly reported revenue by approximately $50 million and made false and misleading statements about key performance metrics, which enabled the company to exceed analyst targets in seven consecutive quarters. The company’s former CEO also agreed, as part of a separate settlement with the SEC, to a tenyear director-and-officer bar, a $700,000 civil penalty, and to reimburse Comscore the $2.1 million he made from the sale of the company’s stock and incentive-based compensation.

• False and Misleading Disclosures – The SEC alleged that in 2014 and 2015, Comscore included disclosures in its SEC filings and its former CEO made similar statements during quarterly earnings calls, which conveyed a consistent increase in net new customers added when in fact the company’s customer base was declining. Also during earnings calls, Comscore and its former CEO allegedly disclosed inflated revenue growth percentages for one of the company’s flagship data analytics products. In both instances, the company’s former CEO approved and implemented changes to the methodologies that Comscore used to calculate the misleading figures. Comscore’s failure to disclose these changes in methodologies made the inflated growth figures misleading. The allegations relating to net new customers follow other recent cases focused on misleading statements about key performance indicators.
• Non-Monetary Transactions – The SEC alleged that Comscore’s former CEO directed the company to improperly recognize revenue resulting from certain non-monetary transactions (“NMTs”) through which it agreed to exchange sets of data with its counterparties without providing cash consideration. The company valued these NMTs, and their resulting revenue, based on the fair value of the transferred data. According to the SEC’s order, Comscore instead should have valued the transactions based on the book value of the assets transferred (which was zero) because the NMTs lacked commercial substance and the fair value of the related assets could not be determined within reasonable limits. The SEC also alleged that Comscore improperly increased the revenue it recognized from the NMTs by including data in the transactions that its counterparties had not requested.
• Linked Transactions and Side Agreements – According to the SEC’s order, Comscore accounted for two related and linked monetary transactions as separate transactions, which enabled the company to improperly recognize $9.4 million of revenue in 2015. Similarly, in connection with his negotiation of two data delivery contracts, Comscore’s former CEO negotiated separate side agreements that concealed the company’s future data delivery obligations and enabled it to recognize each transaction’s full revenue stream in a single quarter, rather than spread it across multiple periods, as required under GAAP.
• Auditor Misrepresentations – The SEC’s order against Comscore’s former CEO alleges that he made misrepresentations and omissions to internal accountants and outside auditors. In particular, the independent auditors were told that customers wanted certain data provided by Comscore, despite the fact that customers had no use for, and did not request, the additional data. The former CEO relayed similar misrepresentations about the true nature of Comscore’s agreements to the company’s internal accountants, leading the SEC to allege that data was provided to customers for the purpose of recognizing additional revenue. These misrepresentations resulted in an alleged violation of SEC Rule 13b2-2, which prohibits directors and officers from causing another person to state or to omit state a material falsehood.
• Repayment of Profits and Incentive-Based Compensation – As noted above, in connection with the settlement, Comscore’s former CEO agreed to reimburse the company $2.1 million, representing incentive-based compensation and profits from the sale of Comscore stock that he received during the 12 months following the company’s filing of the inaccurate financial statements that it later restated. Section 304 of the Sarbanes-Oxley Act requires CEOs and CFOs of public companies to make such repayments when the company files a restatement as a result of misconduct. In recent years, the SEC has only pursued Section 304 violations against CEOs and CFOs who were also charged in connection with the underlying misconduct that led to the restatement. However, under prior administrations, the SEC brought a number of stand-alone clawback actions against executives who were not alleged to have participated in the misconduct.

The SEC’s settlement order with Comscore can be found here.

The SEC’s complaint against Comscore’s former CEO can be found here. 

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