The Securities and Exchange Commission (SEC) has filed charges against former executives of MusclePharm Corp., a nutritional supplement company based in Las Vegas, for allegedly engaging in fraudulent practices to prematurely recognize revenue.
“Honest and transparent financial disclosures are the bedrock of our markets, but as alleged in our complaint, MusclePharm’s executives disregarded these fundamental rules by continuously inflating reported revenue,” Jason Burt, regional director of the SEC’s Denver Office, said in a recent SEC press release. “These actions highlight that the SEC will not hesitate to bring enforcement actions against individuals who threaten the integrity of our markets.”
The SEC complaint alleges that Brian Casutto, former executive vice president of Sales and Operations; and Matthew Zucco, former vice president of Sales; participated in the improper practices; the release said. The complaint also implicates Kevin Harris, former contract chief financial officer, for allegedly failing to prevent the improper recognition of revenue and for misclassifying customer credits. The misconduct allegedly resulted in inflated quarterly revenues of up to 25% and gross profits of nearly 49%.
In a separate litigated complaint, the SEC charged Ryan Drexler, MusclePharm's former CEO, with fraud. The complaint claims that Drexler misled investors about the company's default with institutional noteholders and made false certifications regarding the evaluation of the company's internal controls.
Casutto, Zucco and Harris have each consented to the entry of judgments—subject to court approval—including permanent injunctions, disgorgement with prejudgment interest, and civil penalties; according to the release. Casutto is also barred from serving as an officer or director of a public company for five years. The SEC is seeking injunctive relief, civil penalties, reimbursement to MusclePharm under SOX 304(a), along with officer and director bars in the case against Drexler.
The SEC's investigation was conducted by Jennifer Turner and Michael D'Angelo, and it was supervised by Mary Brady, Nicholas Heinke and Jason Burt. The litigation is led by Zachary Carlyle and Sharan Lieberman under the supervision of Burt, Heinke and Gregory Kasper.
The complaints were filed in the U.S. District Court for the Central District of California, the release said.
