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SEC charges VMware with misleading investors by obscuring financial performance

·2 min read
Illustration shows VMware cloud service logo

By Kanishka Singh

WASHINGTON (Reuters) -The U.S. Securities and Exchange Commission said on Monday it has charged cloud computing company VMware Inc with misleading investors by obscuring its financial performance.

The company was charged with misleading investors about its order backlog management practices, which the agency said enabled it to push revenue into future quarters by delaying product deliveries to customers, thereby concealing the company's slowing performance relative to its projections.

Without admitting or denying the findings in the SEC's order, VMware consented to a cease-and-desist order and will pay an $8 million penalty, the SEC said. VMware confirmed in a statement of its own that it reached a settlement with the SEC and agreed to pay the penalty without admitting or denying the SEC’s findings.

The SEC said it found that beginning in fiscal-year 2019, VMware began delaying the delivery of license keys on some sales orders until just after quarter-end so that it could recognize revenue from the corresponding license sales in the following quarter.

"VMware shifted tens of millions of dollars in revenue into future quarters, building a buffer in those periods and obscuring the company’s financial performance as its business slowed relative to projections in fiscal year 2020," the SEC said.

"Although VMware publicly disclosed that its backlog was 'managed based upon multiple considerations,' it did not reveal to investors that it used the backlog to manage the timing of the company’s revenue recognition," the regulator added.

In May, chipmaker Broadcom Inc said it will buy VMware in a $61 billion cash-and stock deal.

"The SEC Staff has confirmed that it does not intend to recommend enforcement action against any current or former VMware officers or other member of management in connection with the investigation, and this settlement concludes the matter," VMware said in its statement on Monday.

(Reporting by Kanishka Singh in Washington and Ismail Shakil in OttawaEditing by Jonathan Oatis and Matthew Lewis)