Weatherford International to pay $140 million for accounting fraud

September 27, 2016 10:31 AM EDT

The seal of the U.S. Securities and Exchange Commission hangs on the wall at SEC headquarters in Washington, June 24, 2011. REUTERS/Jonathan Ernst


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By Suzanne Barlyn

(Reuters) - Oil services company Weatherford International LLC [WEATH.UL] (NYSE: WFT) has agreed to pay a $140 million penalty to settle charges it inflated earnings between 2007 and 2012 by using deceptive income tax accounting, U.S. regulators said on Tuesday.

Shares of Weatherford's Swiss-based parent Weatherford International PLC (NYSE: WFT) were down 5.6 percent at $5.20 in afternoon trading, after the settlement with the Securities and Exchange Commission was announced.

Two former Weatherford senior accounting executives also agreed to settle charges that they were behind the scheme, which inflated the company's earnings more than $900 million over that period, the SEC said. Regulatory filings by Weatherford's parent company confirmed that it agreed to pay the $140 million penalty.

Weatherford had to restate its financial statements three times in 2011 and 2012.

A Weatherford spokeswoman directed Reuters to a regulatory filing dated on Tuesday in which Switzerland-based Weatherford International PLC, the U.S. company's parent, disclosed that Weatherford will pay $50 million of the fine within 21 days, followed by three $30 million installments over the coming year.

The Weatherford case is the latest in an ongoing SEC crackdown on fraud involving financial reporting and disclosures by publicly traded companies.

Weatherford fraudulently lowered the year-end sum set aside for income taxes each year by $100 million to $154 million to "better align its earnings results with its earlier-announced projections and analysts' expectations," the SEC said in an order.

Weatherford's former vice president of tax, James Hudgins, and former tax manager Darryl Kitay made numerous adjustments to their final calculations "to fill gaps" to match the average tax rate on pretax profit that Weatherford disclosed to investors, the SEC said.

"Mr. Hudgins cooperated fully with the SEC’s investigation and settled the matter without admitting to any charge including fraud," said Philip Hilder, Hudgins' lawyer in Houston, Texas.

A lawyer for Kitay could not be reached for comment.

Weatherford regularly promoted its favorable tax rate to analysts and investors as "one of its competitive advantages," the SEC said.

In 2002, Weatherford changed its place of incorporation from the United States to Bermuda, a zero percent tax jurisdiction. Weatherford used other techniques between 2003 and 2006 to move revenue from higher tax rate jurisdictions, such as the United States and Canada, to lower rate jurisdictions, such as Hungary and Luxembourg, the SEC said.

"Weatherford's designed tax structure was far more successful than reality," the SEC said in a statement.

Hudgins and Kitay neither admitted nor denied the allegations, the SEC said.

Hudgins, who agreed to pay $334,067 in penalties, is barred from serving as an officer or director of a public company for five years. Kitay agreed to a $30,000 penalty. Both are suspended from doing accounting work relating to SEC matters.

In 2013, Weatherford agreed to pay more than $250 million to the SEC, the Department of Justice and the Department of Treasury, among others, to settle charges that it authorized bribes and other kickbacks to foreign officials to win business overseas.

(Reporting by Suzanne Barlyn in New York; editing by Marguerita Choy, Matthew Lewis and David Gregorio)



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