TheStreet.com charged with accounting fraudDecember 18, 2012: 3:30 PM ET
A financial news site is charged with the type of fraud it once regularly covered.
Correction: December 18, 9:00 PM.
FORTUNE -- This is what happens when life imitates reporting.
The Securities and Exchange Commission charged TheStreet.com, a website once known for investigating financial shenanigans, and three former executives with accounting fraud.
According to the SEC, TheStreet (TST), co-founded by CNBC personality Jim Cramer, reported revenue from fraudulent transactions following the acquisition of the online sweepstakes company Promotions.com in 2007. The SEC says two executives of the division -- Gregg Alwine and David Barnett -- regularly entered into "sham transactions" to boost reported sales, and then fabricated and backdated contracts in order to hide the fraud from auditors. A third executive, TheStreet's former CFO Eric Ashman, allegedly instructed his staff to record sales that he knew were not completed and, according to the SEC, should have had reason to question whether they ever would be. The result, according to the charges: TheStreet ended up telling investors it had made 152% more than it actually had in 2008.
All three individuals have settled the charges with the SEC. Ashman agreed to pay $125,000 and be barred from serving as a director or officer of a public company for the next three years. Alwine and Barnett are paying $130,000 and $120,000, respectively, and agreed to be barred from running a public company for 10 years.
Elisabeth DeMarse, CEO of TheStreet, said the accounting irregularities happened in 2008 and 2009, and relate only to Promotions.com, which was sold in December 2009. She said the company discovered the accounting fraud itself, reported it to the SEC. The company has already restated its earnings. She said TheStreet has continued to cooperate with the SEC during the course of the investigation. What's more, under the terms of the settlement, TheStreet is not required to pay any monetary penalties. "We are pleased to put this matter behind us," says DeMarse. Fortune.com and its partner CNNMoney.com compete with TheStreet.com.
Cramer, who is on the company's board of directors and is a regular contributor on its website, was not named in the suit. Shares of the company were down just 3% on the news to $1.60.
The fraud reads like something out of the heady days of the late 1990s, when newly public Internet firms regularly engaged in I'll-scratch-your-back-if-you-scratch-mine transactions. They were the types of accounting frauds that TheStreet.com and its columnist at the time, Herb Greenberg, regularly covered.
In recent years, TheStreet.com has shifted from a general news site to one that focuses on Wall Street professionals. The site is now a reliable, and often thoughtful, source of market analysis and investment news. Earlier this year, the company acquired Wall Street trade publication publisher The Deal for $5.8 million.
It's not TheStreet's first run in with the SEC this year. According to the Wall Street Journal, one of its editors, Michael Baron, was implicated, but not charged, in the SEC's wide-ranging probe to crack down on insider trading.
Correction: An earlier version of this story said that TheStreet bought The Daily. In fact, TheStreet bought The Deal. And updated to include the fact that Fortune.com and the TheStreet.com are competitors, and a brief description of what TheStreet.com covers now. This story was also updated to reflect the fact that TheStreet's statement came from its CEO Elisabeth DeMarse. An earlier version of this story attributed the statement to a spokeswoman.