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SEC Charges Interface, Fulton Financial With Disclosure Violations

The Securities and Exchange Commission said it filed settled actions against Interface Inc., and Fulton Financial Corp. with potential accounting and disclosure violations. Interface's former CFO Patrick Lynch and former Controller and Chief Accounting Officer Gregory Bauer also face charges.

The SEC noted that the violations resulted in the improper reporting of quarterly earnings per share that met or exceeded analyst consensus estimates.

Without admitting or denying the SEC's findings, Interface, Lynch, and Bauer have agreed to cease and desist from future violations of the charged provisions. They will pay civil penalties of $5 million, $70,000, and $45,000, respectively.

Further, Fulton agreed to cease and desist from future violations of the charged provisions and to pay a $1.5 million.

As per the order, Interface, a modular carpet manufacturer, made unsupported, manual accounting adjustments that were not compliant with GAAP in multiple quarters in 2015 and 2016. These adjustments were often made when Interface's internal forecasts indicated that the company would likely fall short of analyst consensus EPS estimates. The order finds that the adjustments boosted the company's income, making it possible for Interface to consistently report earnings that met or exceeded consensus estimates.

The order finds that Interface's former Controller and Chief Accounting Officer Gregory Bauer directed the unsupported adjustments, and its former CFO Patrick Lynch caused Bauer to direct some of the unsupported entries.

As per the order, Interface and Bauer violated certain antifraud provisions and Bauer and Lynch violated the books and records provisions.

Further, the order finds that Fulton Financial, a financial services company, inaccurately presented its financial performance in late 2016 and early 2017. During two quarters in which Fulton was on track to meet or beat analyst consensus EPS estimates, the order finds that Fulton's public filings included a valuation allowance for its mortgage servicing rights that was at odds with the valuation methodology described in the same filings.

Fulton's disclosures created the misleading appearance of consistent earnings across multiple reporting periods.

The latest actions are the first arising from investigations generated by the Division of Enforcement's EPS Initiative. This utilizes risk-based data analytics to uncover potential accounting and disclosure violations caused by, among other things, earnings management practices.

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