Top Google attorney to settle SEC charges
Agency questioned work at N.H. firm
David C. Drummond, Google Inc.'s top attorney, agreed yesterday to pay nearly $700,000 to settle allegations by the Securities and Exchange Commission that, in his former job at a New Hampshire technology training firm , he failed to keep proper accounting controls in place, officials said yesterday.
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Drummond, 43, of San Jose, Calif., neither admitted nor denied wrongdoing as part of the settlement. Neither did several codefendants who also were employees of the New Hampshire company, SkillSoft PLC, known as SmartForce PLC at the time.
The SEC alleged that Drummond, an attorney with no formal accounting training, was responsible for flawed SmartForce financial reports in his role as the company's chief financial officer.
In a restatement in 2002 the firm said it had overstated revenue by $113.6 million and profit by about $127 million from 1999 through 2002. The SEC also settled charges with an Irish unit of Ernst & Young Global, SmartForce's auditor, which was censured and agreed to pay audit fees of $725,000.
Google, the search-engine giant in Mountain View, Calif., said it would not discipline Drummond, one of its most senior executives, but the case shows the stricter environment in which tech nology firms now operate.
The SEC styled the case as an example of how new rules hold company directors and officers to higher standards.
"Recognizing revenue without sound, rigorous analysis is a recipe for false financial statements," said David Bergers, head of the SEC's Boston office. " Officers must ensure the financials are accurate, and cannot hand off that fundamental responsibility to their subordinates, the auditors, or anyone else ."
Among other things, the SEC alleged Drummond learned SmartForce was recognizing revenue from a sales agreement he should have known was improper, but failed to investigate. Drummond also sold stock in the company at the time that was inflated because of the accounting issues, the SEC said, though it did not charge him over the issue.
Drummond's attorney, Harvey J. Wolkoff of Ropes & Gray in Boston, argued that his client's actions should be seen in the context of the time when it wasn't unusual for attorneys to serve as chief financial officers.
"Recall during the during the years in question, Internet commerce was rapidly accelerating and companies like SmartForce were adapting to a changing sales model ," Wolkoff said in a statement. "As a result, SmartForce and their accounting experts were dealing with new and complex accounting rules ."
Wolkoff said further that, "in retrospect, Mr. Drummond acknowledges that he would have been better served in his role at SmartForce had he possessed an accounting background."
SkillSoft said it has been told the SEC would take no action against it in the matter. Ernst & Young said it "fully accepts the determination of the SEC and has agreed to the penalties imposed."
Google's chief executive Eric Schmidt said that "We are pleased that David and the SEC have reached a settlement that brings closure to matters which occurred more than six years ago. David has been an important part of Google's growth and success and we look forward to his continued contributions."
Asked if Drummond would be disciplined, a Google spokesman said, "No discipline is required, nor was imposed."
Ross Kerber can be reached at kerber@globe.com. 