Two former executives of Burlington Web-hosting company Endurance International Group Holdings Inc. will pay about $1.4 million in penalties to the US Securities and Exchange Commission to settle charges the company deliberately overstated its subscriber numbers.
The agency also accused the former chief financial officer of Constant Contact Inc., which was acquired by Endurance in 2016, of hiding the company’s slowing customer growth numbers and inflating subscriber counts.
The new actions come two months after Endurance paid an $8 million penalty in the Constant Contact case.
Endurance’s former chief executive Hari Ravichandran agreed to pay $1.38 million, while former chief financial officer Waruna Ellawala will pay $34,000. The two men neither admitted nor denied wrongdoing in the matter.
Endurance operates a variety of companies that provide website hosting and site-design tools for small- and medium-sized businesses, including Bluehost, HostGator, and SiteBuilder. Constant Contact sends advertising e-mail messages to consumers who have asked to receive them.
The SEC complaint charges Endurance made errors in calculating the number of customers who subscribed to its Web-hosting services. In the fourth quarter of 2014, for instance, the SEC said company managers were warned that Endurance’s subscriber count had been overstated by 10 percent, some 424,000 subscribers.
But instead of disclosing that to regulators or investors, the SEC said Endurance modified its method of counting subscribers to conceal the shortfall.
In June, Endurance paid $8 million to settle a complaint related to Constant Contact, an e-mail marketing firm it acquired for $1.1 billion.
Prior to its acquisition by Endurance, the SEC said Constant Contact inflated subscriber numbers by giving a free month of service to customers who sought to cancel their accounts. This allowed Constant Contact kept listing the departing subscribers as paying customers, thereby deceiving investors about the true health of the company, the SEC said.
On Tuesday, the SEC accused former Constant Contact chief financial officer Harpreet Grewal of spearheading the effort that led to the inflated numbers.
Efforts to contact Ravichandran and Ellawala were unsuccessful, and Endurance International declined to comment.
Grewal’s law firm issued a statement that said “the SEC has brought a weak and unjustified civil-enforcement case against Harpreet Grewal,” and added that Grewal had refused to offer a settlement. “Mr. Grewal prefers to emphatically deny the allegations in this misguided complaint and looks forward to fighting these charges in court.”