Four senior executives of Surgalign manipulated the medial implant manufacturer’s
revenue during the 6-year period ending in 2019. a They hid disappointing sales numbers
by pulling in future revenue ahead of schedule. This is a violation of securities laws and a
total misrepresentation of revenue recognition. The company assured investors that it was
meeting revenue guidance which proved to be a false claim. GAAP was also contradicted
as revenue was claimed and supposedly “earned”, yet was not at all since the orders were
shipped early without proper customer approval. The scheme also severely damaged vital
customer relationships that may not be recoverable.
a a This case marked an achievement by the SEC in its “EPS Initiative” in which the
agency uses analytics to uncover difficult to detect accounting and disclosure violations by
public companies.
a a Four of the company’s executives also agreed to pay back approximately $600,000
in incentive-based compensation paid out during these years of revenue manipulation.
References:
Mintz, Steven M. & Morris, Roselyn. (2020). Ethical Obligations and Decision
Making in Accounting (5th Edition). McGraw-Hill Education US. https://prod.reader-
ui.prod.mheducation.com/epub/sn_7567e/data-uuid-165aaab94b94470e809d751a40bbf1e3
Nicodemus, Aaron. (2022). Compliance Week: a Surgalign to Pay $2M to Settle
Accounting Fraud Charges. https://www.complianceweek.com/regulatory-
enforcement/surgalign-to-pay-2m-to-settle-accounting-fraud-charges/31942.article
The Fly. (2022). Surgalign reaches settlement with U.S. SEC, to pay civil
penalty of $2M.
https://link.gale.com/apps/doc/A712363217/ITOF?u=nhc_main&sid=ebsco&xid=bc05c78
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