According to the SEC complaint, beginning in 2016 and continuing at least until December 2018, Evoqua improperly recognized revenue in violation of Generally Accepted Accounting Principles (GAAP).
The Fraud Scheme
In April 2016, Evoqua acquired Neptune Benson, a maker and seller of large water filters used in public and commercial pools and water parks. Parekh worked at Neptune before it was acquired by Evoqua and became the finance director for Neptune after the sale.
“As finance director, Parekh was responsible for Neptune’s financial statements and recognition of revenue,” the SEC complaint states. “From the beginning of its integration into Evoqua, Neptune regularly reported revenue for consolidation into Evoqua’s financial statements that did not comply with GAAP.”
In 2017, in response to pressure to generate additional revenue in advance of Evoqua’s November 2017 initial public offering (IPO), Parekh “intentionally or recklessly took steps to further increase Evoqua’s already inflated revenue,” the SEC said in its complaint.
Parekh inflated Evoqua’s revenue, in part, by improperly accounting for so-called “bill-and-hold” transactions, in which a company bills a purchaser for a product but does not deliver the product until a later date. Under GAAP, bill-and-hold transactions must meet certain criteria before the seller can recognize revenue. “Evoqua failed to meet those criteria for numerous transactions,” the SEC said.
Calling the fraud “pervasive,” the SEC said Neptune improperly recognized revenue for nine of its 11 largest transactions between January 2016 and September 2018, totaling nearly $13 million. “In total, Neptune improperly recognized revenue in connection with at least 120 transactions representing nearly $36 million in revenue, which comprised approximately 20 percent of Neptune’s total revenue during this time period,” according to the SEC complaint.
Management Missteps
Around November 2016, an employee in Evoqua’s internal audit group reported into the company’s compliance hotline about Neptune’s management manipulating shipping terms to improperly recognize revenue in fiscal year 2016. “A few months later, Evoqua’s compliance department initiated an investigation into the hotline complaint,” the SEC said.
In March 2017, “Evoqua’s compliance personnel emailed the results of the investigation to several of Evoqua’s finance executives,” the SEC said. That investigation identified “several areas for improvements in Neptune’s revenue recognition process.”
“Despite the findings from the internal investigation, Evoqua failed to acknowledge that it had erroneously recognized revenue from these transactions, evaluate whether the errors were material, or assess whether the identified documentation deficiencies and discrepancies from 2016 also impacted the first half of fiscal 2017,” the SEC said.
In November 2017, when challenged by its independent auditor, “Evoqua’s management made an internal decision that the company would view the amount of improperly recognized revenue … as not being material,” the SEC complaint stated.
As a result of the fraudulent scheme, the SEC alleged, Evoqua improperly reported nearly $12 million of additional expected revenue for its fiscal year 2017 in its registration statement and its IPO Prospectus filed with the SEC in October and November 2017. This misconduct continued through the 2018 fiscal year.
The settlements with Evoqua and Parekh are subject to court approval. The final judgment will order Evoqua to comply with certain undertakings, “including an agreement to implement recommended improvements to its system of internal accounting controls,” the SEC said.
Parekh has consented to the entry of a judgment that, in part, will require him to pay disgorgement, prejudgment interest, and a civil penalty, the amounts of which have yet to be determined by the court. 
Jaclyn Jaeger is a contributing editor at Compliance Chief 360° and a freelance business writer based in Manchester, New Hampshire.
They need to look at what he is doing at Adaptec Solutions in Rochester Corning NY Memphis and NC. He has been doing the same shit there