Sec Cryptocurrency SEC Charges Former Pareteum Executives with Accounting and Disclosure Fraud

The Securities and Exchange Commission today announced charges against the former Chief Financial Officer, Edward O’Donnell, and the former Chief Commercial Officer, Victor Bozzo, of New York-based telecommunications company Pareteum Corp. for engaging in fraudulent revenue recognition practices. The SEC also announced settled charges against Pareteum’s former Controller, Stanley Stefanski, for his role in the scheme. Pareteum previously settled to accounting and disclosure fraud charges filed by the SEC in 2021 and filed for bankruptcy in 2022.

According to the SEC’s complaint, from at least 2018 through mid-2019, Bozzo, O’Donnell, and Stefanski engaged in a fraudulent scheme to recognize revenue from Pareteum customers’ non-binding purchase orders for SIM card services, despite knowing that the customers had not committed to paying for the services unless they were able to sell the services to downstream consumers. The SEC’s complaint also alleges that, because of these executives’ misconduct, Pareteum improperly recognized revenue for the purchase orders before the SIM cards were shipped to the customers. This improper revenue recognition scheme allowed Pareteum to materially overstate its revenue by $12 million – or 60 percent – for fiscal year 2018 and by $27 million – or 91 percent – for the first and second quarters of 2019 combined in its financial statements filed with the SEC.

“As alleged in our complaint, Pareteum’s executives artificially inflated Pareteum’s revenue numbers to create the illusion of robust revenue growth,” said Scott A. Thompson, the Associate Director of Enforcement for the SEC’s Philadelphia Regional Office. “Investors should be able to trust public companies to issue truthful and accurate financial statements, and we will hold accountable any executives who abuse that trust and defraud investors.”

The SEC’s complaint, filed in the U.S. District Court for the Southern District of New York, charges Bozzo and O’Donnell with violating the antifraud provisions and other provisions of the federal securities laws and seeks injunctive relief, disgorgement and prejudgment interest, civil penalties, and officer and director bars against Bozzo and O’Donnell. The complaint also seeks to order O’Donnell to reimburse Pareteum certain compensation pursuant to Section 304 of the Sarbanes-Oxley Act of 2002. Separately, Stefanski agreed to cease and desist from violating the antifraud provisions and other provisions of the federal securities laws, to an officer and director bar, to be denied the privilege of appearing and practicing before the SEC as an accountant, and to be subject to future proceedings to determine any monetary relief.

In a parallel action, the U.S. Attorney’s Office for the Southern District of New York today announced criminal charges against Bozzo and O’Donnell.

The SEC’s investigation was conducted by Megan Ryan under the supervision of Julia C. Green, Mr. Thompson, and Philadelphia Office Regional Director Nicholas P. Grippo. The litigation will be handled by Karen Klotz and Judson Mihok, under the supervision of Gregory R. Bockin. The SEC appreciates the assistance of the U.S. Attorney’s Office for the Southern District of New York and the FBI.