According to the SEC order, from 2015 through 2019, “RTI shipped orders weeks or months before its customers had originally requested delivery, thereby pulling sales forward from future quarters, to address projected quarterly revenue shortfalls. In some instances, RTI did so after requesting and obtaining customer permission; in other instances, RTI shipped orders early without customer approval and then prematurely recognized revenue for the sales. In multiple quarters, RTI would not have met its revenue guidance without these undisclosed pull-forwards.”
The SEC further alleged RTI and its management, including former CFO Robert Jordheim, “did not disclose to investors that RTI’s apparent success at achieving its revenue guidance resulted from its reliance on pull-forwards, and they did not disclose the known uncertainty that this practice created for RTI’s future revenue streams.”
“We allege that RTI’s dependence on shipping future orders early concealed the company’s true financial performance from investors and in some instances violated [Generally Accepted Accounting Principles],” D. Mark Cave, Associate Director of the SEC’s Division of Enforcement, stated in a press release. In June 2020, RTI restated its public financial statements from 2014 through 2019 to correct errors caused by the misconduct.
Cave added that the RTI action arose out of the SEC’s Earnings Per Share Initiative, “which has been an important tool in our efforts to expose difficult-to-detect accounting improprieties and has enhanced our ability to hold companies and their executives accountable for misconduct,” he stated.
Without admitting or denying the SEC’s findings, Surgalign and Jordheim agreed to refrain from future violations of specified provisions of federal securities laws. Jordheim must pay $75,000 in penalties and also agreed to return $206,831 to Surgalign and be suspended from appearing and practicing before the SEC as an accountant. He may apply for reinstatement after five years.
Additionally, the SEC filed a complaint in the U.S. District Court for the District of Columbia against RTI Surgical Holdings CEO Brian Hutchison for masking revenue shortfalls from the first quarter of 2015 through the second quarter of 2016 “by urging his subordinates to ship future orders ahead of schedule and report the revenue early” and for repeatedly misleading the market. The SEC has charged Hutchison with violating antifraud and other provisions of the federal securities laws and is seeking civil penalties and the return of his bonuses and profits from sales of RTI stock, among other relief.
Three other former RTI executives returned over $361,000 of incentive-based compensation to Surgalign. Their tenure as RTI executives post-dated Hutchison’s and Jordheim’s alleged violations of the antifraud and other provisions of the federal securities laws.
Surgalign stated in a press release, “The SEC acknowledged that in assessing Surgalign’s offer of settlement, it took into consideration its substantial cooperation with the Commission’s staff throughout the investigation, including by disclosing information about conduct that the staff had not yet uncovered through its own investigation, conducting an internal investigation regarding this conduct, and providing the staff regular and detailed updates on the internal investigation and key documents identified through that investigation.”
“This investigation and the settlement reached stems from the activities of RTI and former senior management, not our current team,” said Surgalign CFO David Lyle. “Reaching this settlement with the SEC will allow us to move forward without this uncertainty and is one more issue resolved in our effort to transform the company since we divested the RTI OEM business roughly two years ago.” 
Jaclyn Jaeger is a contributing editor at Compliance Chief 360° and a freelance business writer based in Manchester, New Hampshire.