SEC fines Healthcare Services Group for concealing legal settlements, inflating earnings

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FILE PHOTO: People exit the headquarters of the U.S. Securities and Exchange Commission (SEC) in Washington, D.C.

By Jonathan Stempel

(Reuters) -Healthcare Services Group Inc will pay a $6 million fine to settle U.S. Securities and Exchange Commission civil charges that its failure to account for legal settlements with its employees enabled it to inflate quarterly results, the regulator said on Tuesday.

The SEC said the Bensalem, Pennsylvania-based provider of housekeeping and dining services to healthcare facilities did not set aside enough money in 2014 and 2015 for expected settlements of class-action litigation claiming it violated federal and state wage-and-hour laws.

Had the company properly recorded its settlement costs, it would have missed Wall Street earnings forecasts at least four times and been unable to report multiple quarters of increased earnings per share, thereby misleading investors, the SEC said.

The SEC called the settlement the third in its EPS Imitative, which uses risk-based data analysis to uncover potential accounting and disclosure violations resulting from so-called “earnings management,” among other things.

John Shea, Healthcare Services’ chief financial officer since 2012, will pay a related $50,000 civil fine and accepted a two-year suspension from appearing before the SEC as an accountant.

The company said he will become chief administrative officer on Sept. 1. It did not immediately respond to a request for additional comment.

Derya Warner, the company’s controller, agreed to a $10,000 SEC fine, the regulator said.

None of the defendants admitted or denied wrongdoing.

In a statement, Healthcare Services Chief Executive Ted Wahl said the company cooperated with the SEC, and was committed to strong internal controls, compliance practices and corporate governance.

(Reporting by Jonathan Stempel in New York, Editing by Mark Porter)

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