SEC Fines Weatherford International $140 Million for Accounting Fraud

Washington D.C., Sept. 27, 2016 —The Securities and Exchange Commission today announced that oil services company Weatherford International has agreed to pay a $140 million penalty to settle charges that it inflated earnings by using deceptive income tax accounting. Two of the company’s senior accounting executives at the time have agreed to settle charges that they were behind the scheme.

According to the SEC’s order, Weatherford fraudulently lowered its year-end provision for income taxes by $100 million to $154 million each year so the company could better align its earnings results with its earlier-announced projections and analysts’ expectations. James Hudgins, who served as Weatherford’s vice president of tax, and Darryl Kitay, who was a tax manager, made numerous post-closing adjustments to fill gaps and meet its previously disclosed effective tax rate (ETR), which is the average rate that a company is taxed on pre-tax profits. Weatherford regularly touted its favorable ETR to analysts and investors as one of its key competitive advantages, and the fraud created the misperception that Weatherford’s designed tax structure was far more successful than reality. Weatherford was consequently forced to restate its financial statements on three occasions in 2011 and 2012.

“Weatherford denied its investors accurate and reliable financial reporting by allowing two executives to choose their own numbers when the actual financial results fell short of what was previously disclosed to analysts and the public,” said Andrew Ceresney, Director of the SEC’s Enforcement Division. “This case is part of our continued focus on financial reporting and disclosure fraud.”

Links:

• SEC’s Order
• SEC Whistleblower Resources