Saba Fraudulent Scheme Details
- Mechanism:
- U.S.-based managers directed India-based consultants to:
- Falsely record hours not yet worked ("pre-booking")
- Omit hours actually worked ("under-booking")
- These practices aimed to:
- Conceal budget overruns
- Meet quarterly revenue and margin targets
- Impact on Financial Reporting:
- Improper acceleration and misstatement of:
- Virtually all professional services revenue
- A substantial portion of license revenue
- Resulted in cumulative overstatement of pre-tax earnings by approximately $70 million
Financial Penalties and Clawbacks
- Saba Software:
- Agreed to pay $1.75 million to settle SEC charges
- Faced additional penalties if restatements of earnings were not filed by specified deadlines
- Executives:
- Patrick Farrell:
- Disgorgement and prejudgment interest: $35,017
- Civil penalty: $50,000
- Sajeev Menon:
- Disgorgement and prejudgment interest: $19,621
- Civil penalty: $50,000
- Babak “Bobby” Yazdani (CEO):
Legal and Regulatory Outcomes
- Violations:
- Anti-fraud provisions of federal securities laws
- Books and records provisions
- Internal control provisions
- Settlements:
- Saba Software and the involved executives consented to SEC orders without admitting or denying the findings
- Agreed to cease and desist from future violations
- Internal Controls:
- SEC found Saba's internal accounting controls ineffective, particularly in the India-based consulting group
- The group was referred to as a “black box” due to lack of visibility into operations Securities and Exchange Commission
Timework Conculsion:
This case underscores the importance of robust internal controls and accurate timekeeping in financial reporting. The SEC's enforcement actions highlight the consequences of fraudulent accounting practices and the mechanisms in place to hold companies and individuals accountable.
For more detailed information, refer to the full SEC press release: SEC Charges Software Company in Silicon Valley and Two Former Executives Behind Fraudulent Accounting Scheme.
