No matter how near or far, the SEC will get you. Today, the agency announced a settled action against NetEase.com, Inc. and two of its former officers. All three are based in China. The government's complaint states:
NetEase.com, Inc. ("NetEase") is an Internet company with its principal operations in China. In June 2000, NetEase raised $65 million through an initial public offering in the United States. During 2000 and 2001, NetEase employees circumvented the company's internal accounting controls and falsified the company's books and records in connection with hundreds of advertising and e-commerce contracts. NetEase then recorded revenue from the transactions in a manner that did not conform with U.S. Generally Accepted Accounting Principles ("GAAP"). As a result, NetEase materially overstated its revenue and made numerous false and misleading statements about its financial condition in annual and periodic reports filed with the Commission and in other public statements, including earnings releases.
The complaint includes details on the techniques used by NetEase to improperly inflate revenues. Included in NetEase's bag of tricks: artificially bifurcating advertising contracts to inflate revenues.
NetEase settled without admitting or denying the SEC's allegations. It consented to the entry of a final judgment permanently enjoining the company from violating reporting, books and records, and internal control provisions of the '34 Act.
In a related case, the SEC also settled administrative charges against Helen Haiwen He, NetEase's former CEO, and Georffrey Jie Wei, its former Chief Accountant and Acting CFO. Both are now subject to cease and desist orders. Wei is also suspended from practice before the SEC.
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