The Securities and Exchange Commission today charged Joseph Jackson and Colm Callan, respectively the former CEO and CFO of WageWorks Inc. with making false and misleading statements and omissions, including to the company’s auditors, that resulted in the company’s improper recognition of revenue related to a contract with a large public-sector client.
The settlements with both individuals include reimbursement of certain incentive-based compensation from the period during which the misconduct took place.
According to the SEC’s order, in March 2016, WageWorks, a provider of Flexible Spending Account services, signed a contract with a large client to process benefits claims for certain public-sector employees. The order finds that on multiple occasions after the contract was signed, the client’s employees told WageWorks that it did not intend to pay for certain development and transition work associated with the contract.
As stated in the order, despite these statements, both Callan and Jackson believed that WageWorks was entitled to be paid for this work, so Callan directed WageWorks to recognize $3.6 million in revenue related to the development and transition work.
According to the order, despite repeated questioning by WageWorks’s internal accounting staff and external auditor about the status of the $3.6 million that WageWorks had booked but not yet received, Callan and Jackson consistently failed to disclose that the client’s employees had denied that it owed these amounts to WageWorks.
In 2019, WageWorks restated its financial statements for the second quarter, third quarter, and fiscal year 2016, reversing the entire amount of revenue WageWorks had previously recognized in connection with the development and transition work.
“Executives should not profit from their or their company’s misconduct,” said Melissa R. Hodgman, Acting Director of the SEC’s Division of Enforcement. “Today, the SEC exercised its longstanding authority to hold executives accountable through clawbacks by requiring Jackson and Callan to reimburse WageWorks for compensation they received stemming from their violations.”
“The SEC’s order finds that Jackson and Callan repeatedly failed to share important information about WageWorks’s ability to collect a significant receivable with WageWorks’s internal accounting personnel and external auditor,” said Erin Schneider, Director of the SEC’s San Francisco Regional Office. “Public companies and their executives must consider all material facts – not just the ones that are favorable to their position – when making financial reporting decisions.”
The SEC’s order finds that Jackson and Callan violated Sections 17(a)(2) and 17(a)(3) of the Securities Act of 1933, made false certifications and misled WageWorks’s auditor in violation of the Securities Exchange Act of 1934, and failed to reimburse WageWorks for certain incentive compensation and stock profits they received during the period when the company was committing accounting violations in violation of the Sarbanes-Oxley Act of 2002.
The SEC’s order also finds that Callan and Jackson caused WageWorks to violate the reporting, books and records, and internal accounting controls provisions of the Exchange Act. Without admitting or denying the SEC’s findings, Jackson and Callan agreed to cease and desist from further violations of the charged provisions.
Jackson also agreed to pay a $75,000 penalty and reimburse WageWorks for $1,929,740 representing incentive-based compensation and profits from the sale of WageWorks stock, and Callan agreed to pay a $100,000 penalty and reimburse WageWorks for $157,590 representing incentive-based compensation.
The SEC’s investigation was conducted by Matthew Meyerhofer and Mike Foley and supervised by Tracy L. Davis and Monique C. Winkler of the San Francisco Regional Office.