MusclePharm Corporation, or MSLP, and certain related parties recently settled an SEC enforcement action which included charges related to non-disclosure of certain perks. The SEC alleged from 2010 through July 2014, MSLP significantly understated its disclosed perquisites by approximately $482,000 or 76% in Forms 10-K, Forms S-1, and proxy statements filed with the Commission. According to the SEC, MSLP understated its disclosed perquisites in:
- 2010 by approximately $37,000 or 100%;
- 2011 by approximately $160,000 or 100%;
- 2012 by approximately $214,000 or 93%; and
- 2013 by approximately $71,000 or 35%.
The SEC believes MSLP paid its chief executive officer approximately $244,000 of undisclosed perquisites during this time period. The perquisites included perquisites related to meals, autos, apparel, personal professional tax and legal services, and two golf club memberships. During this time, MSLP also paid for perquisites of other executives that were not disclosed, including items such as the medical costs of the birth of a child, eye surgery, and personal golf club memberships.
The SEC alleged even after the company began an internal review of undisclosed executive perks and the then-audit committee chair became directly involved in the process, MusclePharm continued filing financial statements that failed to disclose private jet use, vehicles, and golf club memberships for its executives.
Other accounting and disclosure violations alleged in the SEC’s orders instituting settled administrative proceedings against MusclePharm and related parties include:
- MusclePharm failed to disclose related party transactions with a major customer and failed to implement sufficient policies to identify and disclose related party transactions.
- MusclePharm failed to disclose bankruptcies related to two executive officers, and misstated that no members of the board of directors or other executives had been involved in any bankruptcy proceedings.
- MusclePharm improperly accounted for advertising and promotional related costs and consequently overstated its revenue.
- MusclePharm failed to disclose continuing sponsorship commitments for which the company eventually made payments totaling $6.9 million.
- MusclePharm understated its rent expense by failing to disclose $100,000 related to an aircraft lease agreement.
- MusclePharm failed to implement internal accounting controls for perks and other areas where it committed accounting and disclosure violations.
The SEC also alleged MSLP failed to maintain signed signature pages for most of its filings with the Commission from 2010 through 2013 as required under Rule 302 of Regulation S-T. MSLP failed to receive or maintain any manually signed signature pages prior to December 2012. After December 2012, while MSLP had made over 23 Commission filings, MSLP only received or maintained original signature pages for all signatories on eight filings.
MusclePharm and its related parties did not admit or deny the SEC’s findings.