SEC Charges VMware with Misleading Investors by Obscuring Financial Performance

Washington, D.C.--(Newsfile Corp. - September 12, 2022) - The Securities and Exchange Commission today charged VMware Inc. for misleading investors about its order backlog management practices, which enabled the Palo Alto, California-based technology company to push revenue into future quarters by delaying product deliveries to customers, concealing the companys slowing performance relative to its projections.

The SECs order finds that, beginning in fiscal year 2019, VMware began delaying the delivery of license keys on some sales orders until just after quarter-end so that it could recognize revenue from the corresponding license sales in the following quarter. According to the SECs order, VMware shifted tens of millions of dollars in revenue into future quarters, building a buffer in those periods and obscuring the companys financial performance as its business slowed relative to projections in fiscal year 2020. Although VMware publicly disclosed that its backlog was managed based upon multiple considerations, it did not reveal to investors that it used the backlog to manage the timing of the companys revenue recognition.

"As the SECs order finds, by making misleading statements about order management practices, VMware deprived investors of important information about its financial performance," said Mark Cave, Associate Director in the Division of Enforcement. "Such conduct is incompatible with an issuers disclosure obligations under the federal securities laws."

The SECs order finds that VMware violated antifraud provisions of the Securities Act of 1933 as well as certain reporting provisions of the federal securities laws. Without admitting or denying the findings in the SECs order, VMware consented to a cease-and-desist order and to pay an $8 million penalty.

The SECs investigation was conducted by Jonathan Cowen, Kristen Eddy, and Amanda de Roo, with assistance from James Carlson of the Trial Unit, and was supervised by Jeffrey Weiss and Mr. Cave.

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