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Enforcement News: Two Sets of Books, Concealment and Accounting Fraud

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  • Posted on: Jan 2 2024

By: Jeffrey M. Haber 

Invoice fraud is a type of accounting fraud. Invoice fraud comes in many forms. For example, bill padding is a type of invoice fraud. In this type of fraud, the invoice is legitimate, but the payment request includes charges that are erroneous (i.e., they are inflated). Another type of invoice fraud involves duplicate charges. In this form of invoice fraud, the company will send the same invoice twice or list the same materials on more than one invoice. Still another type of invoice fraud involves the issuance of fake invoices. In this form of fraud, the company will send an invoice for non-existent orders.

In today’s Enforcement News, we examine an enforcement action and settlement involving the issuance of fake invoices.

On December 22, 2023, the Securities and Exchange Commission (“SEC”) announced (here) that it had settled charges against Brooge Energy Limited, a publicly traded energy company located in the United Arab Emirates, the company’s former CEO, Nicolaas Lammert Paardenkooper, and its former Chief Strategy Officer and Interim CEO, Lina Saheb.

According to the SEC, before and after going public through a special purpose acquisition transaction, Brooge, whose securities trade on NASDAQ, misstated between 30 and 80 percent of its revenues from 2018 through early 2021 in SEC filings related to the offer and sale of up to $500 million of securities and the issuance (by an affiliate) of $200 million of 5-year senior secured bonds in the Nordic bond market (the “Nordic Bonds”).

The alleged fraud was perpetrated through the creation of two sets of invoices. According to the SEC, the first set consisted of actual invoices to customers who stored oil at Brooge’s facilities in Fujairah. Customers paid these invoices in the ordinary course of business. A second set of invoices, which reflected significantly higher rates and volumes were ostensibly sent to customers who never used Brooge’s facilities. These invoices, said the SEC, were “paid” through a complicated series of unsupported transactions involving an affiliated or related party. The SEC alleged that Paardenkooper and Saheb (together “Senior Management”) knew, or were reckless in not knowing, of the accounting fraud.

In addition to the foregoing, the SEC alleged that certain company personnel reporting to Senior Management provided Brooge’s outside auditors with only the second set of invoices along with falsified ledger entries and other documents designed to support the inflated rates and volumes on the false second set of invoices. As a result, claimed the SEC, Senior Management misled the company’s auditors regarding Brooge’s revenues. 

Further, said the SEC, in order to avoid an event of default on the Nordic Bonds, an affiliate of the company created a third set of unsupported invoices, and certain persons at the company directed the creation of additional false documents during the pendency of the SEC’s investigation.

Finally, the SEC alleged that Brooge personnel tried to conceal the accounting fraud from the Commission. 

In April 2023, the company announced a restatement of its audited financial statements from 2018 through 2020.

The SEC charged the company with violations of the antifraud, proxy statement, reporting, and books and records provisions of the federal securities laws. In settlement of the charges, the company agreed to pay a $5 million penalty. Paardenkooper and Saheb also agreed to settle the charges, to each pay $100,000 civil penalties, and to permanent officer and director bars.

The defendants agreed to settle the charges without admitting or denying the SEC’s findings, except as to the SEC’s jurisdiction over them and the subject matter of the proceeding.

On news of the charges and settlement, the price of Brooge’s stock fell $0.37 per share, or 11.08%, to close at $2.97 per share on December 26, 2023.

A copy of the SEC’s Cease-and-Desist Order can be found here

Jeffrey M. Haber is a partner and co-founder of Freiberger Haber LLP.

This article is for informational purposes and is not intended to be and should not be taken as legal advice.

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