The SEC accused DXC Technology Company, an IT services company based in Ashburn, Virginia, of making false or misleading statements about the company’s non-GAAP financial performance for multiple reporting periods in 2018 and early 2020.
DXC technology disclosures
The Securities and Exchange Commission found that DXC’s reported non-GAAP net income was inflated because the company illegally left out tens of millions of dollars in expenses by mislabeling them as non-GAAP adjustments for the so-called transaction, separation, and integration-related (TSI) costs. Even though DXC said that investors could “better understand the financial performance of DXC” with the help of non-GAAP metrics, the SEC found that the company did not have enough non-GAAP disclosure controls and procedures to make sure that its expense classifications matched its own public description of TSI costs.
The decision says that DXC misclassified TSI expenses, which caused its non-GAAP net income for three fiscal quarters to be much higher than it should have been.DXC also did not check the company’s non-GAAP TSI cost disclosures.
Mark Cave, Deputy Director of the Securities and Exchange Commission’s Division of Enforcement, says, “Issuers that choose to provide non-GAAP financial metrics must describe those metrics correctly in their public disclosures.”Investors were often misled about DXC’s non-GAAP financial performance, the court says, because DXC didn’t have good enough informal procedures and controls.
According to the Commission’s ruling, DXC willfully disregarded the federal securities laws’ reporting requirements as well as the anti-fraud provisions of the Securities Act of 1933.DXC complied with a cease-and-desist order, paid an $8 million penalty, and agreed to design and implement suitable non-GAAP policies and disclosure controls and procedures without admitting or rejecting the judge’s findings.
The SEC accepted DXC’s settlement offer after taking into account the company’s willingness to cooperate and take corrective measures.
The SEC investigation was done by Matthew Finnegan, John Rossetti, and Gary Peters. Jeff Leasure and Mr Cave told them what to do.