SEC: Yes, Faking a CFO Is Fraud
Talk about CFOs who are just a lot of hot air: the SEC has filed charges against the former head of a Houston energy business for fabricating the existence of the company’s CFO for at least 18 months, when the firm had no CFO at all.
Tom Simeo, who actually does exist and lives in New York, was the CEO of Viking Energy Group from 2008 to 2014 and then continued as executive chairman until he resigned in 2017. Viking itself is a penny stock firm that tried to cultivate startup businesses in China for a while, and then reinvented itself in 2014 as an oil & gas acquisitions company. Its main lines of business under Simeo’s tenure seemed to be filing spotty financial statements and losing money.
Anyway, according to the SEC complaint, in 2013 Simeo’s ex-wife introduced him to one Guanfang “Cecile” Yang in Shanghai, while Simeo was still peddling Viking as a business incubator for Chinese startups. He hired Yang as CFO and a member of Viking’s board.
The very day Yang was hired, she gave Simeo a standing resignation letter that Simeo and the board could accept at any time. Her second day on the job, Yang gave power of attorney to Simeo, authorizing him to affix Yang’s signature to any documents — including filings with the SEC — that Yang was required to review and sign as part of her CFO duties. Needless to say, neither of these things were disclosed to investors.
Starting with a Form 8-K filed on Feb. 13, 2013, announcing that Yang was hired as Viking’s CFO, the company then filed 20 quarterly or annual reports to the SEC with her name listed as CFO. Simeo signed Yang’s name on each of those filings, including certifications on the accuracy of those filings as required under the Sarbanes-Oxley Act.
Spoiler: you can’t do that. Per Exchange Act Rule 13a-14 and sections 302 and 906 of SOX, anyone who certifies a firm’s filings to the SEC “may not have the certification signed on his or her behalf pursuant to a power of attorney or other form of confirming authority.”
Even better, Simeo provided Yang’s unverified resumed to Viking’s outside counsel to use for Yang’s senior management biography that was included in the company’s annual reports. The biography said Yang had worked at an audit firm from 1998 to 2006, that she had participated in audits of initial public offerings while at that audit firm, and that she had received a business degree from an international business school.
False, false, and false. There’s a due diligence lesson in there somewhere, but the rest of the allegations in this story are too good to delay. Now we get to the nutty part.
The Lady Vanishes
From November 2014 until May 2016, Yang apparently did no business for Viking at all — as in, no communications between the company and her whatsoever.
Viking’s current CEO, who joined the firm in 2014, says he has never met or spoken with Yang. Outside financial consultants and the company’s external auditors never met or spoke with her. One email from 2017 written by a Viking consultant mentioned certain balances owed to “Cecile” and another person, “whoever they are.”
And then this: Simeo, writing in 2016 to the company’s CEO, recommended that Simeo himself replace Yang as CFO because “I have previously been handling the filings for years.”
Viking finally disclosed that Yang was not CFO of the company in a filing from July 2016. Simeo did get the CFO’s job for another year, until he resigned in May 2017.
Why do all this nonsense at all? Because Viking was trying to raise $2 million in a securities offering, and Yang’s signature was all over the offering documents. At one point the CEO even wrote to Simeo that Yang’s departure could create the “perception that there is a problem with the company if [she] just resigned.” One might say that perception has come to pass anyway.
Whatever. Simeo has been charged with two counts of violating federal securities law. The SEC is seeking monetary damages and a bar against Simeo serving as a public company officer or director — including, we assume, Simeo masquerading as officers or directors who don’t actually exist.