Two former company accounting executives also agree to settle charges, including fines and suspensions
In the settlement, announced on September 27, Weatherford has agreed to pay a $140 million penalty.
According to the SEC's order, Weatherford fraudulently lowered its year-end provision for income taxes by $100 million to $154 million each year "so the company could better align its earnings results with its earlier-announced projections and analysts' expectations." The fraud inflated Weatherford's earnings by as much as $900 million from 2007 to 2012, the SEC said.
James Hudgins, who served as Weatherford's vice president of tax, and Darryl Kitay, who was a tax manager, made numerous accounting adjustments to fill gaps and meet its previously disclosed effective tax rate (ETR). Weatherford regularly communicated its favorable ETR to analysts and investors as one of its top competitive advantages. "The fraud created the misperception that Weatherford's designed tax structure was far more successful than reality," the SEC's order states. Weatherford was forced to restate its financial statements on three occasions in 2011 and 2012.
"Weatherford denied its investors accurate and reliable financial reporting by allowing two executives to choose their own numbers when the actual financial results fell short of what was previously disclosed to analysts and the public," said Andrew Ceresney, Director of the SEC's Enforcement Division. "This case is part of our continued focus on financial reporting and disclosure fraud."
Weatherford changed where it is incorporated from the United States to Bermuda in 2002 for the tax advantages offered there, and used other techniques to move revenue from higher tax jurisdictions to lower ones, the SEC said. The moves, however, did not provide the tax savings that the executives claimed in the financial statements, thus inflating earnings.
Weatherford, Hudgins, and Kitay agreed to the SEC's order without admitting or denying the findings that they violated anti-fraud provisions of federal securities laws. Hudgins, who must pay $334,067 in penalties, is barred from serving as an officer or director of a public company for five years. Kitay agreed to a $30,000 penalty. Both are suspended from doing accounting work relating to SEC matters, which includes not participating in the financial reporting or audits of public companies. The order permits Hudgins and Kitay to apply for reinstatement after five years.
The SEC also said that the investigation is continuing.