Securities Law Prof Blog

Editor: Eric C. Chaffee
Univ. of Toledo College of Law

Thursday, November 13, 2008

Former Aspen Technology Officers Settle Revenue Inflation Charges

The United States District Court for the District of Massachusetts entered final judgments by consent against former Aspen Technology, Inc. ("Aspen") founder and Chairman of the Board of Directors Lawrence B. Evans and former Chief Executive Officer David L. McQuillin in a case filed by the SEC in January 2007. According to the SEC, Evans and McQuillin participated in a fraudulent revenue inflation scheme with another senior officer of Aspen. Without admitting or denying the allegations in the Commission's complaint, McQuillin and Evans each consented to the entry of a final judgment enjoining them from violating the anti-fraud and other provisions of the securities laws. McQuillin was also ordered to pay an $85,000 civil penalty, $28,381.61 in disgorgement and pre-judgment interest, and was barred from serving as an officer or director of any public company, and Evans was ordered to pay a $75,000 civil penalty and $21,478.01 in disgorgement and pre-judgment interest.

According to the Commission's complaint, Evans and McQuillin, along with former Aspen Chief Financial Officer Lisa W. Zappala, caused Aspen to report inflated revenue in the company's publicly-filed financial statements and in press releases on at least six software transactions during fiscal years 1999 through 2002. The Complaint alleged that the three defendants caused Aspen to recognize revenue during the relevant period despite knowing that Aspen was prohibited from doing so under Generally Accepted Accounting Principles because contracts were not signed within the appropriate quarter and/or the earnings process was incomplete due to contingency arrangements which changed the terms of the customers' payment commitments under the contracts. The Complaint alleged that, as a result of the fraudulent scheme, Aspen overstated license revenue for its fiscal year ended June 30, 2000 by 5.5% and for the fiscal year ended June 30, 2001 by 9.3%. The Complaint further alleged that, as a result of prematurely recognized revenue from those earlier periods, license revenue for the fiscal years ended June 30, 2002, 2003, and 2004 was understated by 1.8%, 13.9%, and 4.0% respectively.

The Commission's action against Zappala remains pending.

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