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U.S. SEC charges Sequential Brands with deceiving investors over goodwill

Published 12/11/2020, 08:58 AM
Updated 12/11/2020, 11:00 AM
© Reuters. FILE PHOTO: The U.S. Securities and Exchange Commission logo adorns an office door

By Jonathan Stempel and Susan Heavey

WASHINGTON/NEW YORK (Reuters) -The U.S. Securities and Exchange Commission on Friday sued Sequential Brands Group Inc, accusing the brand management company of deceiving investors by failing to write down its goodwill fast enough after its stock price fell.

Shares of Sequential fell as much as 16.4% in Friday trading.

In a complaint alleging negligence-based fraud, the SEC said Sequential ignored internal calculations in late 2016 that showed a writedown was needed because its stock price was falling, including a 41% drop in that year's fourth quarter.

The SEC said this enabled the New York-based company to appear financially healthier to investors by overstating operating income, lowering expenses, and understating by at least $42 million its reported 2016 net loss.

Sequential did not fix the problem until February 2018, when it belatedly wrote down the $304.1 million of goodwill on its books, the SEC said.

The complaint filed in Manhattan federal court seeks civil fines.

Goodwill is an intangible asset normally associated with one company's purchase of another.

Sequential typically buys brands, which include Jessica Simpson and Joe's Jeans, and licenses them in exchange for fees.

By ignoring "clear evidence" of goodwill impairment, Sequential "delayed alerting investors to its declining economic prospects," SEC associate enforcement director Melissa Hodgman said in a statement.

Mary Beth Maloney, a partner at Gibson, Dunn & Crutcher representing Sequential, said the company would defend itself against the SEC's "meritless" lawsuit, and believed it had complied with goodwill accounting rules.

In morning trading, Sequential was down $1.40, or 7.7%, at $16.83, after earlier falling to $15.25.

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The case is SEC v Sequential Brands Group Inc, U.S. District Court, Southern Distinct of New York, No. 20-10471.

Latest comments

Pre Market 15.5000    -2.7300    -14.9753% ouch !
A few thousands exchange a day ie nobody cares. 1 share could move this stock
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