TheCorporateCounsel.net

In late August, the SEC announced an enforcement action involving multiple accounting failures by Plug Power — including failures to properly account for right-of-use assets and lease liabilities for sale-leasebacks, properly classify and present certain R&D activities as cost of revenue, properly estimate loss accruals for extended-maintenance contracts and properly account for bonus expense and certain conversions of Plug’s convertible preferred stock. These issues were identified during the audit of the company’s 2020 financial statements, and the company filed a Form 12b-25 and subsequently restated annual financial statements for 2018 and 2019 and interim quarterly financial statements for 2019 and 2020.

Although the company began implementing a remediation plan in 2021 — including hiring 60 new employees in accounting, finance and internal audit — the SEC seemed particularly concerned that some material weaknesses remained, as disclosed in the company’s 10-K for 2022. As highlighted by this Cooley PubCo blog, in addition to a civil penalty of $1.25 million, the settlement also includes an additional penalty of $5 million if Plug fails to comply with any undertakings — including that it fully remediate the material weaknesses in ICFR and ineffective DCP within one year.

The blog also notes an important point Plug got right in this process — it indicated in its Form 12b-25 that there could be adjustments to prior periods, signaling a possible restatement. The SEC took issue with forms missing this disclosure in other administrative proceedings in late August.

As a reminder, enforcement has been very focused on restatements and material weaknesses recently. As I blogged back in May, according to this Cornerstone Research report, in 2022, enforcement actions referring to announced restatements and/or material weaknesses in internal control reached the highest level in recent years and also grew as a percentage of all actions initiated during the year.

– Meredith Ervine