Earlier this year Comscore lost its CEO Bryan Wiener and President Sarah Hofstetter. The two left over an alleged strategy dispute with the board. This afternoon the Securities and Exchange Commission (SEC) charged the troubled company and its former CEO Serge Matta with securities fraud.
$50 in revenue fabricated. According to the SEC, Comscore and Matta overstated revenue by $50 million to create “the illusion of smooth and steady growth” over a roughly two-year period between 2014 and 2016. The scheme involved recognizing revenue on non-monetary data transactions:
Comscore, at the direction of its former CEO Serge Matta, entered into non-monetary transactions for the purpose of improperly increasing its reported revenue. Through these transactions, Comscore and a counterparty would negotiate and agree to exchange sets of data without any cash consideration. Comscore recognized revenue on these transactions based on the fair value of the data it delivered, which had been improperly increased in order to inflate revenue. The SEC’s orders also find that Comscore and Matta made false and misleading public disclosures regarding the company’s customer base and flagship product and that Matta lied to Comscore’s internal accountants and external audit firm. This scheme enabled Comscore to artificially exceed its analysts’ consensus revenue target in seven consecutive quarters.
Settlement and fines. The SEC also announced a settlement of charges. Reportedly, Comscore and Matta agreed to “cease and desist” from the kinds of actions that gave rise to this securities fraud complaint, as well as to the payment of monetary penalties. Comscore will pay $5 million and Matta will pay the U.S. $700,000. He must also reimburse Comscore $2.1 million (proceeds from the sale of stock and other compensation). He’s also not allowed to serve as an officer or director of a public company for the next decade.
Matta is currently the president of GroundTruth. However, it’s unlikely he’ll be able to remain there given the negative PR fallout. It’s not clear if jail time was a possibility for these charges.
Why we should care. The news broke as much of the advertising industry is convened in New York for Advertising Week. This news will put the ongoing discussions of trust and transparency in a new light. Media buyers rely on Comscore data, among other sources, to help inform where they should buy digital media. Being able to trust that data is critical for a healthy ecosystem.
It’s also critical that the U.S. enforce the integrity of public company disclosures because investors and the public are at the mercy of company earnings reports to determine performance. The SEC says that Matta mislead internal and external accountants during this two-year period. However, it seems implausible that Matta was the only party involved without any help or knowledge on the part of anyone else within Comscore.
The company will now need to do some serious damage control to regain the trust of its customers, investors and the analyst community. If its financial disclosures were exaggerated or fabricated, it’s not huge leap to ask whether its industry metrics can be fully trusted.