SCOTTSDALE, Ariz. – (Business Wire) Five years after Gradient Analytics first reported on UTStarcom (UTSI), the U.S. Securities and Exchange Commission has announced accounting fraud charges and a settlement fine against two UTSI executives for \u201cfalse financial filings.\u201d<\/p>\n
Gradient Analytics initiated coverage of UTSI on Sept. 25, 2003, after finding that \u201cinsider selling activity ha[d] ballooned\u201d at a time when the company was reporting \u201cextremely high accruals\u2026 and anemic cash flows.\u201d Gradient\u2019s report also noted that, \u201cdespite a 77.4% increase in earnings, UTSI\u2019s operating cash flow declined over 300% in the six months ended 06\/30\/03.\u201d<\/p>\n
According to the SEC\u2019s press release, \u201cUTStarcom publicly reported over $400 million in sales between 2000 and 2005 that were subject to undisclosed side agreements or contract modifications rendering revenue recognition improper under applicable accounting principles.\u201d The SEC also alleged that UTSI \u201cfailed to disclose and properly account for transactions between the company and an entity controlled by an executive of UTStarcom\u2019s China subsidiary.\u201d<\/p>\n
As Gradient\u2019s forensic accountants began to look more closely at the company\u2019s financial reports, a number of significant concerns emerged. A January 23, 2004, Watch List entry cited concerns about \u201ca highly material level of related-party transactions\u201d and other balance-sheet concerns, such as potentially excessive inventory levels.<\/p>\n
In March 2004, we reiterated our \u201cF\u201d rating for earnings quality based on concerns that \u201cUTSI\u2019s 10K [had been] delayed, disclosures over an additional related party, and internal-control weaknesses.\u201d According to the SEC\u2019s complaint, the company \u201cfailed to properly account for and disclose related-party transactions\u201d and that \u201c[d]espite being put on notice of potential accounting issues by, among other things, material weakness letters sent by the company\u2019s outside auditors \u2026 defendants falsely certified that UTSI\u2019s quarterly and annual reports did not contain any material errors or omissions.\u201d<\/p>\n
UTSI was soon placed on Gradient\u2019s first-ever edition of the Greatest Concerns List (July 30, 2004), where it remained for the next nine months. During this period, the company acknowledged that it had identified a variety of accounting irregularities involving revenue timing, related-party dealings, inventories, and a host of other account balances.<\/p>\n
On April 1, 2005, Gradient warned clients that UTSI\u2019s announcement of inventory losses related to related party MDC was likely \u201cjust the tip of the iceberg.\u201d Indeed it was just the tip of the iceberg, as there would be many more restatements and disclosures of ineffective internal controls to come. According to the SEC\u2019s complaint, \u201cUTSI prematurely recognized over $350 million from 78 sales transactions in China\u201d between 2000 and 2005. The Commission also alleges that \u201c[b]etween 2003 and 2005, (UTSI) prematurely recognized nearly $50 million in net revenue from international sales\u2026which were subject to side agreements.\u201d<\/p>\n
According to UTSI’s press release, the firm also is under investigation by the Department of Justice for \u201cpossible violations of the Foreign Corrupt Practices Act.\u201d<\/p>\n
About Gradient Analytics<\/p>\n
Gradient is one of the country\u2019s leading independent research firms providing objective, academically-rigorous research and quantitative stock ratings for institutional clients.<\/p>\n
Hinton Communications
\nKaren Hinton, 703-798-3109
\nKaren@hintoncommunications.com<\/p>\n","protected":false},"excerpt":{"rendered":"
SCOTTSDALE, Ariz. – (Business Wire) Five years after Gradient Analytics first reported on UTStarcom (UTSI), the U.S. Securities and Exchange Commission has announced accounting fraud charges and a settlement fine against two UTSI executives for \u201cfalse financial filings.\u201d Gradient Analytics […]<\/p>\n","protected":false},"author":2,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_jetpack_memberships_contains_paid_content":false,"footnotes":"","jetpack_publicize_message":"","jetpack_publicize_feature_enabled":true,"jetpack_social_post_already_shared":false,"jetpack_social_options":{"image_generator_settings":{"template":"highway","default_image_id":0,"font":"","enabled":false},"version":2}},"categories":[5,827],"tags":[1098,917,1555],"class_list":["post-1462","post","type-post","status-publish","format-standard","hentry","category-fraud-news-stories","category-public-companies","tag-gradient-analytics","tag-sec-investigation","tag-utstarcom"],"jetpack_publicize_connections":[],"jetpack_featured_media_url":"","jetpack_shortlink":"https:\/\/wp.me\/p6Z0e-nA","jetpack_sharing_enabled":true,"_links":{"self":[{"href":"https:\/\/www.sequenceinc.com\/fraudfiles\/wp-json\/wp\/v2\/posts\/1462","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.sequenceinc.com\/fraudfiles\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.sequenceinc.com\/fraudfiles\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.sequenceinc.com\/fraudfiles\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.sequenceinc.com\/fraudfiles\/wp-json\/wp\/v2\/comments?post=1462"}],"version-history":[{"count":0,"href":"https:\/\/www.sequenceinc.com\/fraudfiles\/wp-json\/wp\/v2\/posts\/1462\/revisions"}],"wp:attachment":[{"href":"https:\/\/www.sequenceinc.com\/fraudfiles\/wp-json\/wp\/v2\/media?parent=1462"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.sequenceinc.com\/fraudfiles\/wp-json\/wp\/v2\/categories?post=1462"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.sequenceinc.com\/fraudfiles\/wp-json\/wp\/v2\/tags?post=1462"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}