Enforcement Action Reveals Misleading Customer Counts
In a settled enforcement action, the SEC resolved allegations related to non-monetary transactions regarding certain Comscore transactions. The enforcement action also involved disclosures surrounding the number of customers.
In 2014 and 2015, Comscore disclosed its total number of customers and net new customers added in quarterly earnings calls. Comscore also disclosed its customer total in periodic filings with the Commission. According to the SEC the number of net new customers added per quarter was an important performance indicator for Comscore that analysts tracked and reported on. During this time, in an effort to conceal the fact that quarterly growth in Comscore’s customer total had slowed or was declining, a Comcast employee allegedly approved and implemented multiple changes to the methodology by which the quarterly customer count was calculated. These changes were neither applied retroactively nor disclosed to the public per the SEC order.
Initially, the employee allegedly approved the incremental lowering – over at least four quarters – of the dollar threshold pursuant to which certain then existing customers were considered Comscore customers for purpose of the disclosure. When that dollar threshold reached the point where it could not be lowered any further, the employee allegedly approved adding different categories of agency end-users to the customer count over at least three different quarters. Prior to these changes, Comscore consistently counted only the agency as its client.
The employee allegedly implemented these changes to the customer count methodology to show a consistent net increase in Comscore’s total customers. For seven of the eight quarters during 2014 and 2015, Comscore’s disclosed net customers added was in the 40s – creating the illusion of a smooth and steady growth in its business. In fact, had the methodology remained consistent, Comscore’s customer total would have shown a decline over the two-year period and been lower by hundreds of customers. By the end of 2015, Comscore’s customer count total was overstated by more than 15%.
Comscore and the employee did not admit or deny the allegations in the SEC orders.
Contact Steve Quinlivan for more information.