Bankrate Inc. is a leading publisher, aggregator and distributor of personal finance content on the Internet providing consumers with proprietary and objective personal finance editorial content across multiple categories including mortgages, deposits, insurance, credit cards, retirement, automobile loans and taxes. This month, Bankrate Inc. agreed to pay $15 million to settle accounting fraud charges brought by the SEC against the company. Three former executives were also charged because of their involvement in the fraudulent manipulation of the company’s financial results to meet analyst expectations. The SEC alleges that the company’s executives fabricated revenues and avoided booking certain expenses to meet analyst estimates of EBITDA. Bankrate’s stock rose when the company announced the inflated financial results, and the company’s then CFO proceeded to sell more than $2 million in company stock following the inflated stock price.

According to the SEC’s complaint filed in federal court in Manhattan:

1. After learning that Bankrate’s preliminary financial results for the second quarter of 2012 fell short of analyst estimates, the CFO decided to increase the company’s revenues by

o Improperly directing its insurance and credit cards division to book additional revenue without any supporting evidence of a sale.
o The insurance division immediately booked the requested revenue to a dormant customer account with no intention of justifying the revenue until it was flagged by the company’s auditor.
o The credit cards division resisted such directives but nevertheless booked some improper revenue.
o Refusing to accept the credit card division’s unwillingness to record the full amount of improper revenue, the CFO insisted that the approximate difference be recorded as revenue by the mortgage business.

2. Bankrate also improperly reduced certain expenses, or failed to book them at all, in order to meet analyst estimates.

3. The CFO and some other executives lied to the company’s auditor regarding the improper accounting entries.

Ultimately, it is the company’s shareholders who are penalized because of accounting frauds. Bankrate’s stock price went up from around $15 in 2011 to an all-time high of $25 in 2012 largely because of inflated earnings. Since then, the stock price has plunged to an all-time low of $10. Accounting related fraud destroyed nearly $1.5 billion in shareholder value over a period of three years. Caveat emptor, let the buyer beware when investing in the stock market.

http://www.sec.gov/news/pressrelease/2015-180.html

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