An Indian-origin executive has settled charges with the US Securities and Exchange Commission for overstating the company’s subscriber base, while another Indian-origin person was charged for making similar misrepresentations.
Hari Ravichandran, 42 former chief executive of web hosting company Endurance International Group Holdings and former chief financial officer Waruna Ellawala knowingly provided inflated subscriber figures for the Massachusetts-based online marketing company, the Securities and Exchange Commission (SEC) said.
Ravichandran, a resident of Boston, had founded Endurance in 1997 and served as the company’s Chief Executive Officer and as a member of the Board of Directors.
The SEC also filed a complaint in US District Court in Massachusetts alleging that former Constant Contact CFO Harpreet Grewal, 51, hid its slowing customer growth from investors and inflated its publicly reported subscriber numbers. Constant Contact became a subsidiary of Endurance after it was acquired by it in 2016.
Constant Contact sold email marketing and other online marketing tools to customers primarily through subscription arrangements. SEC said Grewal defrauded Constant Contact’s investors concerning the number of paying customers for the company’s products and services, which was a key metric disclosed by Constant Contact to its investors.
The SEC filed a settled enforcement action in June against Endurance and Constant Contact in which Endurance agreed to pay a USD 8 million penalty. In the latest action, Ravichandran and Ellawala agreed to settle the charges without admitting or denying them and pay USD 1.38 million and USD 34,000 respectively in disgorgement, interest, and penalties.
They also agreed to cease and desist from further violations of various antifraud, reporting, books and records, and internal controls provisions of the federal securities laws.
“For companies who provide subscription-based services, size and growth of subscriber base can be critical metrics,” said Paul Levenson, Director of the SEC’s Boston Regional Office. “Investors depend on the integrity of management in reporting such figures, which commonly fall outside the scope of formal audits. Holding senior executives accountable for failures of oversight as well as outright manipulation of such metrics is vital to protecting our markets.”