SEC v. Evoqua Water Technologies Corp.; and Imran Parekh, No. LR-25662, District of Rhode Island (Mar. 13, 2023) — Press Release

SEC Charges Water Treatment Company and Former Executive with Accounting Violations Litigation Release No. 25662 / March 13, 2023 Accounting and Auditing Enforcement No. 4390 / March 13, 2023 Securities and Exchange Commission v. Evoqua Water Technologies Corp. and Imran Parekh, No. 1:23-cv-00105 (D.R.I. filed Mar. 13, 2023) The Securities and Exchange Commission charged Pittsburgh, Pennsylvania-based Evoqua Water Technologies Corp. and its former division-level finance director Imran Parekh for improper accounting practices that materially misstated Evoqua's revenue reported in the company's SEC filings during 2017 and 2018. Evoqua and Parekh have agreed to settle the charges by, among other things, agreeing to injunctions against future violations of the securities laws and Evoqua paying a civil penalty of $8.5 million. Monetary and other relief against Parekh will be left to later decision by the court. According to the SEC's complaint filed in federal court in Rhode Island, from at least the fourth quarter of 2016 through August 2018, Parekh, as the Finance Director of one of Evoqua's divisions based in Rhode Island, engaged in fraudulent accounting practices that resulted in Evoqua improperly reporting materially false revenue amounts in its financial statements filed with the Commission. The SEC's complaint alleged that Parekh inflated the revenue Evoqua reported quarterly and at year-end by counting revenue from sales much earlier than accounting principles permitted. The complaint alleged that Parekh improperly accounted for so-called "bill-and-hold" transactions (where a company bills a purchaser for a product but the seller does not deliver the product to the purchaser until some future date), for which Evoqua recognized revenue from the sale of filtration products earlier than permitted and without meeting the criteria found in accounting principles to be able to immediately recognize the revenue. The complaint further alleges that negligent conduct at Evoqua's corporate level in managing the financial reporting and accounting controls processes facilitated Parekh's improper accounting practices. As a result of the fraudulent scheme, the complaint alleges, Evoqua improperly reported nearly $12 million of additional expected revenue for its fiscal year 2017 in its registration statement and its initial public offering (IPO) Prospectus filed with the Commission in October and November 2017; that the misconduct continued through Evoqua's first year as a public company, resulting in inaccurate books and records and material misstatements of Evoqua's financial condition in subsequent filings with the Commission; and that by failing to disclose to investors (or in filings with the Commission) that Evoqua reported uncompleted sales as revenue by misapplying bill-and-hold accounting criteria, Evoqua misled investors and potential investors about the true financial picture of the company. Evoqua has consented to the entry of a final judgment that permanently enjoins it from violating the antifraud provisions of Section 17(a)(2) and (3) of the Securities Act of 1933 ("Securities Act"); the periodic reporting provisions of Section 13(a) of the Securities and Exchange Act of 1934 ("Exchange Act") and Rules 12b-20, 13a-l, 13a-11, and 13a-13 thereunder; and the books and records and internal accounting controls provisions of Sections 13(b)(2)(A) and (B) of the Exchange Act. The final judgment would also order Evoqua to comply with certain undertakings, including an agreement to implement recommended improvements to its system of internal accounting controls, and to pay a civil penalty of $8.5 million. Parekh has consented to the entry of a judgment that permanently enjoins him from violating the antifraud provisions of Section 17(a) of the Securities Act and Section 10(b) of the Exchange Act and Rule 10(b)(5) thereunder; from aiding and abetting the periodic reporting provisions of Section 13(a) of the Securities Act and Rules 12b-20, 13a-l, 13a-11, and 13a-13 thereunder; from aiding and abetting the books and records and internal accounting controls provisions of Sections 13(b)(2)(A) and (B) of the Exchange Act; and from knowingly circumventing an issuer's system of accounting controls or knowingly falsifying an issuer's books and records in violation of Section 13(b)(5) of the Exchange Act. The judgment also orders that Parekh will be ordered to pay disgorgement, prejudgment interest, and a civil penalty, the amounts of which will be determined by the court, and that the court will determine whether Parekh should be barred from serving as an officer or director of a public company and if so the duration of such a bar. The settlements with Evoqua and Parekh are subject to court approval. The case was handled by Kerry Vasta, Jonathan Allen, Peter Moores, David London, and Amy Gwiazda of the Boston Regional Office. SEC Complaint

SEC Charges Water Treatment Company and Former Executive with Accounting Violations Litigation Release No. 25662 / March 13, 2023 Accounting and Auditing Enforcement No. 4390 / March 13, 2023 Securities and Exchange Commission v. Evoqua Water Technologies Corp. and Imran Parekh, No. 1:23-cv-00105 (D.R.I. filed Mar. 13, 2023) The Securities and Exchange Commission charged Pittsburgh, Pennsylvania-based Evoqua Water Technologies Corp. and its former division-level finance director Imran Parekh for improper accounting practices that materially misstated Evoqua's revenue reported in the company's SEC filings during 2017 and 2018. Evoqua and Parekh have agreed to settle the charges by, among other things, agreeing to injunctions against future violations of the securities laws and Evoqua paying a civil penalty of $8.5 million. Monetary and other relief against Parekh will be left to later decision by the court. According to the SEC's complaint filed in federal court in Rhode Island, from at least the fourth quarter of 2016 through August 2018, Parekh, as the Finance Director of one of Evoqua's divisions based in Rhode Island, engaged in fraudulent accounting practices that resulted in Evoqua improperly reporting materially false revenue amounts in its financial statements filed with the Commission. The SEC's complaint alleged that Parekh inflated the revenue Evoqua reported quarterly and at year-end by counting revenue from sales much earlier than accounting principles permitted. The complaint alleged that Parekh improperly accounted for so-called "bill-and-hold" transactions (where a company bills a purchaser for a product but the seller does not deliver the product to the purchaser until some future date), for which Evoqua recognized revenue from the sale of filtration products earlier than permitted and without meeting the criteria found in accounting principles to be able to immediately recognize the revenue. The complaint further alleges that negligent conduct at Evoqua's corporate level in managing the financial reporting and accounting controls processes facilitated Parekh's improper accounting practices. As a result of the fraudulent scheme, the complaint alleges, Evoqua improperly reported nearly $12 million of additional expected revenue for its fiscal year 2017 in its registration statement and its initial public offering (IPO) Prospectus filed with the Commission in October and November 2017; that the misconduct continued through Evoqua's first year as a public company, resulting in inaccurate books and records and material misstatements of Evoqua's financial condition in subsequent filings with the Commission; and that by failing to disclose to investors (or in filings with the Commission) that Evoqua reported uncompleted sales as revenue by misapplying bill-and-hold accounting criteria, Evoqua misled investors and potential investors about the true financial picture of the company. Evoqua has consented to the entry of a final judgment that permanently enjoins it from violating the antifraud provisions of Section 17(a)(2) and (3) of the Securities Act of 1933 ("Securities Act"); the periodic reporting provisions of Section 13(a) of the Securities and Exchange Act of 1934 ("Exchange Act") and Rules 12b-20, 13a-l, 13a-11, and 13a-13 thereunder; and the books and records and internal accounting controls provisions of Sections 13(b)(2)(A) and (B) of the Exchange Act. The final judgment would also order Evoqua to comply with certain undertakings, including an agreement to implement recommended improvements to its system of internal accounting controls, and to pay a civil penalty of $8.5 million. Parekh has consented to the entry of a judgment that permanently enjoins him from violating the antifraud provisions of Section 17(a) of the Securities Act and Section 10(b) of the Exchange Act and Rule 10(b)(5) thereunder; from aiding and abetting the periodic reporting provisions of Section 13(a) of the Securities Act and Rules 12b-20, 13a-l, 13a-11, and 13a-13 thereunder; from aiding and abetting the books and records and internal accounting controls provisions of Sections 13(b)(2)(A) and (B) of the Exchange Act; and from knowingly circumventing an issuer's system of accounting controls or knowingly falsifying an issuer's books and records in violation of Section 13(b)(5) of the Exchange Act. The judgment also orders that Parekh will be ordered to pay disgorgement, prejudgment interest, and a civil penalty, the amounts of which will be determined by the court, and that the court will determine whether Parekh should be barred from serving as an officer or director of a public company and if so the duration of such a bar. The settlements with Evoqua and Parekh are subject to court approval. The case was handled by Kerry Vasta, Jonathan Allen, Peter Moores, David London, and Amy Gwiazda of the Boston Regional Office. SEC Complaint