Sept. 12, 2022 —The Securities and Exchange Commission today charged VMware Inc. for misleading investors about its order backlog management practices, which enabled the Palo Alto, California-based technology company to push revenue into future quarters by delaying product deliveries to customers, concealing the company’s slowing performance relative to its projections.
The SEC’s order finds 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. According to the SEC’s order, 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. 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.
“As the SEC’s order finds, by making misleading statements about order management practices, VMware deprived investors of important information about its financial performance,” said Mark Cave, Associate Director in the Division of Enforcement. “Such conduct is incompatible with an issuer’s disclosure obligations under the federal securities laws.”
The SEC’s order finds that VMware violated antifraud provisions of the Securities Act of 1933 as well as certain reporting provisions of the federal securities laws. Without admitting or denying the findings in the SEC’s order, VMware consented to a cease-and-desist order and to pay an $8 million penalty.
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Mark Astarita is a nationally recognized securities attorney, who represents investors, financial professionals and firms in securities litigation, arbitration and regulatory matters, including SEC and FINRA investigations and enforcement proceedings.
He is a partner in the national securities law firm Sallah Astarita & Cox, LLC, and the founder of The Securities Law Home Page - SECLaw.com, which was one of the first legal topic sites on the Internet. It went online in 1995 and is updated daily with news, commentary and securities law related links.
