Marvell Technology Group to settle SEC charges around alleged 'pull-in' scheme for $5.5M

SEC Charges Silicon Valley-Based Issuer With Misleading Disclosure Violations

Washington D.C., Sept. 16, 2019 —

The Securities and Exchange Commission today announced that Marvell Technology Group, Ltd. will pay $5.5 million to settle charges that it misled investors when it engaged in an undisclosed revenue management scheme in order to meet publicly-issued revenue guidance. 

According to the SEC’s order, Marvell orchestrated a scheme to accelerate, or “pull-in,” sales to the current quarter that had been scheduled for future quarters.  As stated in the order, the purpose of the pull-in sales, which took place during the fourth quarter of 2015 and first quarter of 2016, was to close the gap between actual and forecasted revenue and to meet publicly-issued revenue guidance.  The pull-ins for these quarters amounted to $24 million and $64 million of the total quarterly revenues, or 5% and 16% of revenue in its key storage segment, respectively.  According to the SEC’s order, Marvell’s use of pull-ins masked a substantial decline in customer demand, a loss of market share and reduced future sales.  Further, the order states that Marvell ignored internal concerns that the pull-ins were obfuscating the company’s deteriorating financial results.  According to the order, by failing to disclose its use of the pull-ins, Marvell misled investors in its SEC quarterly filings and in earnings calls, making positive statements regarding its fourth quarter 2015 financial results and stating that it had met its public guidance for the first quarter of 2016. 

“Investors rely on public companies to supply them with financial results they can use to make informed investment decisions,” said Anita B. Bandy, an Associate Director in the SEC’s Division of Enforcement. “Marvell’s failure to disclose its use of sales pull-ins to investors created a misleading and incomplete picture about the company’s financial results and ability to meet its revenue targets.”

The SEC’s order finds that Marvell violated the antifraud and reporting provisions of the federal securities laws.  Without admitting or denying the SEC’s findings, Marvell consented to the order, agreeing to cease and desist from further violations and to pay a $5.5 million penalty.

The SEC’s investigation was conducted by H. Norman Knickle and Gary Peters, with assistance from Joshua Braunstein of the Trial Unit, and supervised by Fuad Rana.

Marvell frequently offered various financial incentives to persuade its customers to agree to pull-ins. As a general matter, Marvell relied on certain key customers to generate a significant portion of its revenue, and those customers provided periodic forecasts of product they intended to purchase from Marvell in a given quarter. Marvell’s pull-in plan, however, required its customers to accept product earlier than they had requested, and Marvell, with the approval of senior management, sought to incentivize its customers to agree to the pull-ins. Among other things, Marvell obtained pull-in sales by offering price rebates, discounted prices, free products, and extended payment terms, at times inconsistent with its revenue recognition policy. Yet, even with these incentives, Marvell’s customers were at times reluctant to agree to pull-in sales. As one Marvell employee remarked in reporting on a successful pull-in, Marvell had to “beg” the customer to agree to a multi-million dollar pull-in in exchange for $75,000 in free parts.

https://www.sec.gov/litigation/admin/2019/33-10684.pdf