Securities Regulation Daily Wrap Up, ACCOUNTING AND AUDITING—SEC charges former SPAC with reporting, accounting failures, (Aug 29, 2024)

By John Filar Atwood

As part of settlement, company agreed to pay an additional $1.2 million penalty if it does not remediate its control deficiencies within one year.

The SEC imposed a $400,000 civil penalty, with the threat of an additional fine of $1.2 million, on former oil and gas SPAC National Energy Services Reunited Corp. for failure in its internal control over financial reporting (ICFR) and ineffective disclosure controls and procedures (DCP). The failures resulted in a multi-year restatement of the company’s prior financial statements. National Energy agreed to settle without admitting or denying the charges (In the Matter of National Energy Services Reunited Corp., Release No. 34-100845 (Aug. 28, 2024)).

Systemic deficiencies. According to the SEC’s order, the company had systemic deficiencies in its accounting and controls, including its supply-chain, finance, and accounting functions, dating back to June 2018. National Energy identified potentially significant accounting errors in March 2022, and publicly disclosed that the company’s 2018, 2019, and 2020 annual financial statements should no longer be relied upon.

The Commission determined that the company failed to properly report its accounts payable, accrued liabilities, operating expenses, and certain private warrants during that entire period. National Energy corrected the accounting errors in a multi-year restatement that primarily increased the company’s accrued liabilities and cost of services, and significantly decreased net income, for the restated periods, the SEC noted. The company disclosed numerous material weaknesses in ICFR and ineffective DCP in the restatement.

Remediation plan. The SEC acknowledged that National Energy prepared a remediation plan during the restatement process and began implementing the plan in March 2023. Moreover, the company has made progress in its remediation plan, the agency said. However, the process is not complete and the National Energy’s material weaknesses have not been fully remediated, the Commission concluded.

The order finds violations of the financial reporting, accounting, and controls provisions of 1934 Act Sections 13(a), 13(b)(2)(A), and 13(b)(2)(B) and Rules 13a-1, 13a-15(a) - (c), and 13a-16.

Potential additional penalty. National Energy agreed to a cease-and-desist order and a civil penalty of $400,000. The company also committed to fully remediate its material weaknesses in ICFR and ineffective DCP within one year from the date of the order, or it will be subject to an additional $1.2 million civil penalty.

Companies: National Energy Services Reunited Corp.

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