United Rentals has agreed to pay $14 million to settle charges that it engaged in financial fraud and a broad range of improper accounting practices.
The company is one of the largest equipment rental providers in the world with locations throughout the U.S., Canada and Mexico. The Securities and Exchange Commission alleged that between late 2000 and 2002, URI engaged in a series of dubious three-party sales-leaseback transactions to meet earnings forecasts and analyst expectations.
URI sold used equipment to a financing company, leased it back for a short period, and then arranged for a third-party equipment manufacturer to agree to sell the equipment at the end of the lease period. URI guaranteed both the financing company and the equipment manufacturer against any losses. Former CFO Michael Nolan and former chief acquisitions officer John Milne have already been individually charged with orchestrating the transactions.
URI also allegedly sold blocks of used equipment for amounts in excess of fair value, in exchange for financial inducements to some of its suppliers.
In addition, the SEC alleges that from 1997 to 2000, URI engaged in other improper accounting practices involving its valuations of acquired assets, use of acquisition reserves, and accounting for customer relationships. The SEC said that URI also improperly accounted for other items that overstated net income, including its estimation and recording of self-insurance reserves, recognition of equipment rental revenues, and income tax accounting.
"We are very pleased to bring this matter to a conclusion for the company," said URI president and CEO Michael Kneeland in a statement. "The company has cooperated fully with the SEC throughout the commission's review of our historical accounting practices. We have also made a number of important changes since the SEC inquiry began in 2004, including restructuring the company's finance, treasury, internal audit and compliance functions, among many other positive steps."
URI also settled a class-action lawsuit in March for $27.5 million. The suit was filed in the wake of the SEC investigation.
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