'Accounting Fraud' Penthouse Uncovered
Penthouse International Inc. has been charged with accounting fraud by the Securities and Exchange Commission, which alleges the pornography publisher and a former shareholder certified financial statements that had not been reviewed by an independent auditor, the Wall Street Journal reported.
Robert Guccione, the founder of Penthouse who resigned from the company in 2003, settled related SEC charges that he misled investors, without admitting or denying the SEC's assertions, the Journal reported.
The case stems from an alleged inflated quarterly result in March 2003, which contained an electronic signature attesting that the financial statements had been reviewed by then-chief executive and chief financial officer Guccione. In fact, the SEC said the report hadn't been reviewed by Guccione or the company's outside auditor and lawyers, the Journal reported.
The SEC claims that Charles Samel, formerly an executive and director at Penthouse, and Jason Galanis, a former shareholder, rigged the books for that quarter by including a $1 million payment on a multiyear business agreement that wasn't signed until the following quarter.
The March 2003 report was filed after the 2002 Sarbanes-Oxley Act required public company executives to attest to the accuracy of financial reports, the Journal reported.
As part of his agreement with the SEC, Guccione will pay no fine, but agreed to cease and desist from future violations. Mark Schonfeld, regional director of the SEC's New York office, told the Journal that Guccione didn't know the company's quarterly report was filed without his review, but didn't blow the whistle once he learned of it.
Regulators took issue with Penthouse's subsequent efforts to come clean saying their steps compounded the problem by certifying that its disclosure controls and procedures were adequate.
The SEC's lawsuit, filed in federal court in Manhattan, seeks to fine Penthouse, Samel and Galanis, and bar them from future accounting violations. Regulators also seek to ban Samel and Galanis from serving as officers or directors of a U.S. public company, the Journal reported.
Attorneys for Penthouse, Samel and Galanis weren't immediately available to comment.
Penthouse, known for publishing nude photographs of then-Miss America Vanessa Williams in 1984, has seen circulation slump in recent years, and its former parent, General Media, filed for bankruptcy protection in 2003, the Journal reported.