UTStarcom Inc. has run afoul with regulators yet again.
This time the maker of telecom products agreed to pay $3 million for bribing people in China. Half of the penalty is going to the Department of Justice and the other half to the Securities and Exchange Commission.
The Alameda, Calif., company, founded in 1991, sells telecom products, mostly to China. It had one of those fleeting hotshot stocks during the tech bubble, rising to an all-time high of $87.50, for a market capitalization of $3.1 billion. Alas, today the stock is trading around $2.25, about what it takes to get you on a New York City subway.
The DOJ said the company agreed to pay the fine for violating the Foreign Corrupt Practices Act (FCPA) by providing travel and other value goodies to foreign officials, specifically employees at state-owned telecommunications firms in the People's Republic of China. More specifically, the DOJ said UTSI has acknowledged that employees and agents at its wholly-owned subsidiary, UTStarcom China Co. Ltd., arranged and paid for employees of Chinese state-owned telecommunications companies to travel to Hawaii, Las Vegas and New York City, among other popular tourist places.
The trips were purportedly for individuals to participate in training at UTSI facilities. Trouble was, UTSI had no facilities in those locations and conducted no training, the DOJ noted. "UTS-China then falsely recorded these trips as ‘training' expenses, while the true purpose for providing these trips was to obtain and retain lucrative telecommunications contracts," the government added in its announcement.
No criminal charges are being filed, however. The DOJ stressed that because the company voluntarily disclosed the transgressions, cooperated with the government's investigation and agreed to take remedial efforts, the Department has agreed not to prosecute UTSI or its subsidiaries.
In its related action, the SEC alleged that UTStarcom's wholly-owned subsidiary in China paid nearly $7 million between 2002 and 2007 for hundreds of overseas trips by employees of Chinese government-controlled telecommunications companies that were customers of UTStarcom, purportedly to provide customer training. "In reality, the trips were entirely or primarily for sightseeing," it noted.
The SEC also alleged that UTStarcom provided lavish gifts and all-expenses paid executive training programs in the U.S. for existing and potential foreign government customers in China and Thailand. UTStarcom also purported to hire individuals affiliated with foreign government customers to work in the U.S. and provided them with work visas, when in reality the individuals did not work for UTStarcom. According to the SEC's complaint, UTStarcom also made improper payments to sham consultants in China and Mongolia while knowing that they would pay bribes to foreign government officials.
The SEC said UTStarcom agreed, without admitting or denying the charges, to the entry of a permanent injunction against FCPA violations and to provide the SEC with annual FCPA compliance reports and certifications for four years, in addition to paying the $1.5 million penalty.
UTStarcom, however, is no stranger to regulators.
Back in May 2006, the company announced it would restate its results for nearly three years due to premature revenue recognition on a contract with a customer in India, as well as several other transactions. It said at the time it would lower revenue by $49.6 million and net income by $11.8 million.
The company also said that it had identified a limited number of certain other transactions in which revenue was prematurely recognized because certain elements of these contracts were undelivered at the time of the original recognition.
In September 2007, UTStarcom said it would restate its results for the seven-year period ended December 31, 2006 to correct the way it recognized revenue generated in China. It said part of the revenue was reported earlier than it should have been.
In July 2007, the company also said the need to record additional stock-based pay was causing it to restate results by $28 million from 2000 through 2006. The announcement was made after independent reviewers found the company had backdated the measurement date for stock options.
There is still more. In May 2008, former UTStarcom CFO Michael Sophie and then chief executive Hong Liang Lu settled an SEC case involving false financial reports and recurring internal-control deficiencies. Without admitting or denying guilt, they agreed to pay civil penalties of $75,000 and $100,000, respectively. According to the SEC's complaint at the time, UTStarcom publicly reported more than $400 million in sales between 2000 and 2005 that were subject to undisclosed side agreements or contract modifications that rendered revenue recognition improper under applicable accounting principles.
The SEC also alleged that UTStarcom failed to disclose and properly account for transactions between the company and an entity controlled by an executive of UTStarcom's China subsidiary, and that the company failed to properly record compensation expenses for employee stock options.
The SEC claimed that Lu and Sophie falsely certified the company's financial statements and books and records were accurate.
In a related administrative order, the SEC found that UTStarcom violated securities rules and that Lu and Sophie caused the company's violations. Both the company and the individuals agreed to cease and desist from such violations.