VMware is in trouble with the US Securities and Exchange Commission who believes that it would have missed its earnings targets numerous times since May 2019 if it had not shifted “tens of millions of dollars” in revenue into future quarters and “obscured” a slowdown in demand for its product from investors.
The Securities and Exchange Commission issued a “cease and desist order” to force VMware to stop the practice of “discretionary holds” where a company withholds reporting all of its revenue until the following quarter so that its sales teams are given a “buffer” to meet future targets.
The SEC wrote: “VMware misleadingly reassured investors on quarterly earnings calls and in earnings-related press releases and other earnings materials … that its revenue growth was meeting expectations, when revenue actually would not have met expectations or would have missed expectations by a larger amount without VMware’s continual net reductions in its discretionary backlog.”
VMware agreed to pay $8 million in penalties to the government “without admitting or denying the SEC’s findings”.
“The SEC’s findings do not include any findings that the company failed to comply with generally accepted accounting principles”, VMware wrote in the statement.
“The SEC Staff has confirmed that it does not intend to recommend enforcement action against any current or former VMware officers or other member of management in connection with the investigation, and this settlement concludes the matter.”
However, the SEC says that VMware violated Sections 17(a)(2) and (3) of the U.S. Securities Act, which Cornell Law School calls “a key anti-fraud provision” on its website.
According to the SEC, the 1933 law would “prohibit any person from directly or indirectly obtaining money or property by means of any untrue statement of a material fact … or engaging in any transaction, practice, or course of business which operates or would operate as a fraud,” the SEC said.
It looks like this will not go away.
