(Reuters) – The Securities and Exchange Commission sued Sequential Brands Group Inc. on Friday, accusing the brand management company of deceiving investors by not writing down its goodwill fast enough after the stock price fell.
Shares of sequential fell as much as 16.4% in Friday trading.
In a complaint due to negligence-based fraud, the SEC said that Sequential ignored internal calculations at the end of 2016 which showed that a write-down was needed as its share price fell, including a 41% decline. during the fourth quarter of the year.
The SEC said this enabled the New York-based firm to appear financially healthier for investors by exaggerating operating profit, reducing costs and underestimating by at least $ 42 million its reported net loss for 201
Sequential did not resolve the problem until February 2018, when it too late wrote down $ 304.1 million in goodwill on its books, the SEC said.
Goodwill is an intangible asset that is normally associated with one company's acquisition of another.
Sequential usually buys brands, which include Jessica Simpson and Joe & # 39 ;s Jeans, and licenses them in exchange for fees.
By ignoring "clear evidence" of impairment of goodwill, sequential "delayed warning to investors about their declining economic prospects," SEC Deputy CEO Melissa Hodgman said in a statement. said the company would defend itself against the SEC's "meritless" lawsuit and believed it had complied with the rules for accounting for goodwill. The case is SEC v Sequential Brands Group Inc. U.S. District Court, Southern Distinct of New York, No. 20-10471.