By Jonathan Stempel
(StartName) – The U.S. Securities and Exchange Commission on Wednesday said Saba Software Inc’s <SABA.PK> former chief executive will repay $2.57 million of bonuses, incentive pay and profit from stock sales to the Silicon Valley company as part of a settlement over an accounting fraud.
Babak “Bobby” Yazdani, who founded Saba in 1997 and resigned as chief executive in March 2013, was not charged with misconduct over the scheme, which involved falsified time-sheets by consultants at an Indian subsidiary, the SEC said.
In agreeing to the claw-back, Yazdani neither admitted nor denied the SEC’s findings against Saba, which agreed to a $1.75 million civil fine. Saba also did not admit wrongdoing.
The claw-back provision of the corporate governance law known as the Sarbanes-Oxley Act can compel executives to return money to their companies, for the benefit of shareholders, that they received while shareholders were being misled.
Wednesday’s settlement resolved charges that Saba managers in the United States directed consultants in India to falsify time-sheets by recording time they had yet to work, or failing to record hours worked to conceal budget overruns.
The SEC said the scheme was meant to help Saba hit quarterly revenue and margin targets and resulted in the Redwood Shores, California-based company overstating pre-tax earnings by about $70 million from October 2007 to January 2012.
On a conference call, SEC enforcement chief Andrew Ceresney called Saba’s accounting fraud “pervasive,” in which managers called the India consulting group a “black box” because it was hard to tell what work was performed, who performed it and when.
He also said the case reflected the SEC’s increased focus on financial reporting fraud and underscored the need for companies with offshore operations to have effective internal controls.
“Financial reporting failures can result in significant claw-back obligations,” Ceresney said.
In a statement, Saba Chief Executive Shawn Farshchi said the company was pleased to settle. Saba said it expects to file restated financial results in the fourth quarter of this year.
The SEC also said two former Saba vice presidents who directed the scheme, Patrick Farrell and Sajeev Menon, agreed to pay $85,017 and $69,621, respectively, to settle related charges. Farrell and Menon also did not admit wrongdoing.
Lawyers for Yazdani and Farrell declined to comment. Menon’s lawyer did not immediately respond to a request for comment.
Ceresney said the SEC has obtained claw-backs from 52 people related to activity at 32 companies. He also said six prior enforcement actions involved no evidence of misconduct by executives from whom the SEC sought to recoup money.
(Reporting by Jonathan Stempel in New York; Editing by G Crosse and Dan Grebler)