Two former top officers, including an Indian-origin executive, of a web hosting company reached a settlement with U.S. Securities and Exchange Commission for misrepresenting their company’s subscriber base.
Hari Ravichandran, the former CEO of Endurance International Group Holdings, and former chief financial officer Waruna Ellawala knowingly provided inflated subscriber figures for the Massachusetts-based online marketing company, according to a statement by SEC.
Last week, Ravichandran and Ellawala agreed to settle the charges without admitting or denying them and pay $1.38 million and $34,000, respectively, in disgorgement, interest, and penalties, the statement added. The SEC filed a settled enforcement action in June against Endurance and Constant Contact in which Endurance agreed to pay an $8 million penalty.
Ravichandran, a 42-year-old Boston resident, and Ellawala also agreed to cease and desist from further violations of various antifraud, reporting, books and records, and internal controls provisions of the federal securities laws.
The commission also filed a complaint in U.S. District Court in Massachusetts alleging that former Constant Contact CFO Harpreet Grewal, 51, hid its slowing customer growth from investors and inflated its publicly reported subscriber numbers. Constant Contact became a subsidiary of Endurance after it was acquired by it for $1.1 billion in 2016.
“For companies who provide subscription-based services, size and growth of subscriber base can be critical metrics,” Paul Levenson, Director of the SEC’s Boston Regional Office, said in the statement. “Investors depend on the integrity of management in reporting such figures, which commonly fall outside the scope of formal audits. Holding senior executives accountable for failures of oversight as well as outright manipulation of such metrics is vital to protecting our markets.”
Endurance was known as a leading provider of cloud-based platform solutions, which aimed to help small and medium-sized businesses flourish online.
Endurance and Constant Contact Inc. misled investors about subscriptions to their web hosting and internet-based marketing products, according to SEC. Subscription metrics were important to the companies for the purpose of assessing business performance, and were also a chief source of revenue.
The findings also revealed that before being acquired by Endurance, Constant Contact inflated its subscriber numbers in a ploy dubbed the “Save Program,” through which company staff were instructed and incentivized to offer free service to customers who sought to cancel their subscriptions, so that Constant Contact could keep the customers on the rolls as active subscribers. Endurance also failed to tell investors about an error which resulted in the company overstating its own subscriber count.