SEC Charges Water Treatment Execs with Accounting Fraud

The Securities and Exchange Commission has charged two former executives from a defunct California water treatment company with accounting fraud.

The SEC charged the pair of executives from Basin Water Inc. with fraudulently inflating its revenues, beginning with the company’s first financial report after it went public.

The SEC alleges that former Basin Water CEO Peter L. Jensen and former CFO Thomas C. Tekulve, Jr. improperly recognized revenue to disguise the company’s true financial performance in its 2006 and 2007 quarterly and annual reports.

The SEC also alleges that Jensen sold and donated his own Basin Water shares before the company’s true financial condition was revealed, reaping millions of dollars in trading profits and tax benefits. Basin Water built, sold, and leased water treatment systems that cleaned contaminated groundwater.

The SEC’s complaint, filed June 24, 2011 and announced Monday, alleges that Jensen and Tekulve improperly included revenue from six sales transactions in Basin Water’s financial reports filed with the Commission. The SEC alleges that, depending upon the transaction, the sale was not final; did not have the customer’s required acceptance of the system; allowed the customer to pay nothing until the customer resold the system, even though there was no resale; did not provide enough assurance that the customer would pay for the system; or where the company had not shipped the system.

The SEC alleges that as a result Basin Water overstated its 2006 revenues by 13 percent and its 2007 revenues by 74 percent, and overstated its quarterly 2006 and 2007 revenues by 10 percent to 161 percent. The SEC further alleges that, before the company’s true financial condition was revealed, Jensen sold or donated approximately 1.9 million Basin Water shares for over $9.1 million in trading profits and tax deductions.

In February 2009, Basin Water restated its financial results. In July 2009, the Rancho Cucamonga, Calif.-based company declared Chapter 11 bankruptcy and is now defunct.

The SEC’s complaint charges Jensen and Tekulve with violations of various securities laws and also alleges that they failed to comply with Section 304 of the Sarbanes-Oxley Act. The complaint seeks against each defendant permanent injunctive relief, an officer and director bar, disgorgement of ill-gotten gains plus prejudgment interest, a financial penalty, and Sarbanes-Oxley Act reimbursement.

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