As part of a settlement with the U.S. Securities and Exchange Commission, Hertz Global Holdings has agreed to pay a civil fine of $16 million over financial misstatements.
The misstatements affected the Estero-based rental car giant's earnings reports from February 2012 to March 2014, making it appear the company was in stronger financial shape than it actually was.
The SEC stated it considered the "remedial acts promptly undertaken" by Hertz in accepting the company's offer for a settlement.
The company has replaced numerous senior and lower-level employees since the errors were revealed. Those changes included former CEO and President Mark Frissora, who stepped down in September 2014, citing personal reasons. Investors had called for his resignation, criticizing his leadership and management over accounting and operational missteps.
The company also replaced its lead independent director in 2014.
Hertz has agreed to "cease and desist" from committing any future violations of the federal securities laws.
In an email, a Hertz spokeswoman said the company had no comment.
According to the SEC, Hertz violated multiple sections of the Securities Act and the Exchange Act.
After its own review, Hertz identified $235 million in reported income that didn't comply with generally accepted accounting principals.
One of the largest misstatements – valued at $48 million – was related to its "subrogation," which involves how the company offsets expenses for vehicles damaged during rental.
In its investigation the SEC found the accounting errors were made in a "pressured corporate environment, where, in certain instances, there was an inappropriate emphasis on meeting internal budgets, business plans and earnings estimates."
Specific findings included:
For years, Hertz's allowance-related expenses were understated and income was inflated because of inappropriate estimation methodologies.
The company didn't adequately disclose to investors the effects of its decision in 2013 to hold the rental cars in its U.S. fleet longer.
Also in 2013, the company reaffirmed its financial guidance, despite internal analysis that indicated it was based on inaccurate information.
When Hertz restated its financial results for 2011, 2012 and 2013, the company identified 17 areas with material accounting errors across its business units and 11 material weaknesses in its internal controls over financial reporting.
The company acknowledged "an inconsistent and sometimes inappropriate tone at the top" that might have contributed to the errors.
The inaccurate information was provided in the offer or sale of securities, leading to multiple violations of federal laws.
Hertz neither denied nor admitted to the SEC's findings.
The SEC stated Hertz representatives met with its staff on "multiple occasions, voluntarily providing information likely to be of interest."
The Hertz Corp., a subsidiary of Hertz Global Holdings Inc., operates the Hertz, Dollar, Thrifty and Firefly vehicle rental brands in about 10,200 corporate and franchisee locations throughout North America, Europe, the Caribbean and elsewhere.
Hertz Corp. is one of the largest worldwide rental companies.
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