SEC charges American Renal Associates, former executives with revenue manipulation scheme

The Securities and Exchange Commission (SEC) has charged dialysis services provider American Renal Associates (ARA) and three former executives for conducting an alleged revenue manipulation scheme between 2017 and November 2018, the regulator announced Monday.

Jonathan Wilcox and Jason Boucher, former chief financial officers for ARA, as well as Karen Smith, a former ARA controller, have been charged as part of the SEC complaint filed in the Southern District of New York.

ARA has already agreed to settle the issue without admitting or denying the allegations and will accept a permanent injunction and a $2 million civil penalty. That settlement is subject to court approval.

For the other defendants, the SEC said it is seeking permanent injunctive relief, disgorgement with prejudgment interest, civil penalties and officer and director bars, in addition to reimbursement from the former chief financial officers.

ARA operated 240 dialysis clinics located in 27 states and Washington, D.C., as of Jan. 25, according to the company’s website. It was acquired by Innovative Renal Care, a portfolio company of Nautic Partners, near the beginning of the year.

The SEC alleged that ARA improperly manipulated revenue adjustments called “topsides” to embellish its financials and hit key targets. The company also delayed recording topside adjustments until they were needed to meet the financial metric targets and misled an auditor to conceal the improper accounting, the regulator alleged.

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Restated financial statements issued by ARA in September 2019 showed that the company had overstated its net income by more than 30% in 2017 and more than 200% for the first nine months of 2018, the SEC wrote in its announcement.

ARA had worked with the SEC to voluntarily produce documents and other information related to its accounting practices since first receiving a request from the regulator in October 2018, the company previously reported in its financial filings.

"ARA and its senior executives allegedly engaged in an extensive revenue manipulation scheme for nearly two years," Jennifer S. Leete, associate director of the SEC’s Division of Enforcement, said in a statement. "The SEC will continue to hold companies and their executives responsible for providing investors with misleading financial information."

The SEC charged the defendants with violations of the antifraud, reporting, books and records, and internal accounting control provisions of the federal securities laws, according to the complaint. The three former executives have also been charged with making false statements to auditors.