SEC v. Evoqua Water Technologies Corp.; and Imran Parekh, No. 1:23-cv-00105, District of Rhode Island (Mar. 13, 2023) — Complaint

UNITED STATES DISTRICT COURT
DISTRICT OF RHODE ISLAND

SECURITIES AND EXCHANGE COMMISSION,

   Plaintiff,

 v.

EVOQUA WATER TECHNOLOGIES CORP.
and IMRAN PAREKH,

   Defendants.

Case No.

JURY TRIAL DEMANDED
COMPLAINT
Plaintiff United States Securities and Exchange Commission (“the Commission”) alleges
the following against Defendants Evoqua Water Technologies Corp. (“Evoqua”) and its former
division-level finance director Imran Parekh, and hereby demands a jury trial:
SUMMARY OF THE ACTION
1. Beginning in 2016 and continuing at least until December 2018, Evoqua
improperly counted (or “recognized”) revenue in violation of Generally Accepted Accounting
Principles (“GAAP”), which is a common set of accounting principles, standards, and procedures
that public companies must follow when they compile their financial statements, and is the
accounting standard adopted by the Commission that must be followed by public companies in
the United States. Evoqua’s improper revenue recognition caused the company to materially
misstate the financial statements it incorporated into its November 2017 initial public offering
(“IPO”) of stock and reported in its subsequent annual and quarterly financial statements filed
with the Commission. Parekh was primarily responsible for the fraudulently inflated   revenues at
Evoqua.

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2. Evoqua is a Pennsylvania company that earns revenue by selling water
technology and treatment products. In April 2016, Evoqua acquired Neptune Benson
(“Neptune”), which was headquartered in Rhode Island. Neptune manufactured and sold large
water filters used in public and commercial pools and water parks. Evoqua incorporated Neptune
by making it a division-level company in Evoqua’s products segment. Parekh worked at Neptune
before Evoqua acquired Neptune, and became the finance director for Neptune after the sale to
Evoqua. As finance director, Parekh was responsible for Neptune’s financial statements and
recognition of revenue. Parekh was also given supervisory responsibilities for other division-
level companies within Evoqua’s products segment.
3. From the beginning of its integration into Evoqua, Neptune regularly reported
revenue for consolidation into Evoqua’s financial statements that did not comply with GAAP.
Under Parekh’s supervision, Neptune improperly recognized revenue from sales transactions that
lacked documentation and for which Neptune failed to ship the product to the customer before
the end of the reporting period. In 2016 and early 2017, Evoqua’s departments of finance,
compliance, and internal audit became aware of problems with Neptune’s accounting controls,
including lack of documentation supporting revenue recognition and improper recognition of
revenue on product sales before the product shipped to the customer.
4. During 2017, in response to pressure to generate additional revenue in advance of
Evoqua’s IPO, Parekh intentionally or recklessly took steps to further increase Evoqua’s already
inflated revenue. Working with others at Neptune and Wallace & Tiernan, another division-level
company at Evoqua, Parekh inflated revenue in violation of GAAP in two primary ways. First, at
the end of Evoqua’s fiscal quarters, he approved the recognition of revenue from sales
transactions that did not support the recognition of revenue under GAAP because they contained,

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among others things, sales terms with contingency clauses, return rights, or future performance
obligations for Evoqua, or because the transactions lacked assurance Evoqua could collect from
the purchaser. Second, Parekh directed and allowed Neptune and Wallace & Tiernan (and thus
Evoqua) to fraudulently recognize revenue in periods before the company shipped products to
customers to complete the transaction and in violation of accounting principles applicable to
such transactions. For example, Parekh directed the recognition of revenue for product stored in
warehouses (in other words, not shipped to the purchasing customer) at the end of quarters
without any valid accounting basis. In effect, Evoqua improperly recognized revenue on a “bill-
and-hold” basis in violation of GAAP. A bill-and-hold transaction is generally one where the
seller “bills” the buyer for the purchase but the seller then “holds” the product and does not
deliver it to the customer until some later date. Under GAAP, bill-and-hold transactions must
meet certain criteria before the seller can recognize revenue, and Evoqua failed to meet those
criteria for numerous transactions.

5. The fraud was pervasive and infected most of Neptune’s largest transactions.
Neptune improperly recognized revenue for nine of its 11 largest transactions between January
2016 and September 2018 totaling nearly $13 million. In total, Neptune improperly recognized
revenue in connection with at least 120 transactions representing nearly $36 million in revenue,
which comprised approximately 20% of Neptune’s total revenue during this time period.
6. As a result of the fraud, Evoqua reported nearly $ 12 million of additional
expected revenue for its fiscal year 2017 in its securities registration statement and its IPO
Prospectus (a disclosure document providing details about the IPO) filed with the Commission in
October and November 2017. The registration statement and the IPO Prospectus are key
documents containing financial and other important information that a company uses to market

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its shares to the public for the first time. By reading Evoqua’s registration statement and IPO
Prospectus, potential investors could evaluate the newly public company’s prospects. The
revenue Evoqua improperly reported in violation of GAAP made it appear that the company was
selling more in aquatic filtration products, and earning more revenue and income, than it actually
was at the time of the IPO.
7. In November 2017, immediately following Evoqua’s IPO, Evoqua’s independent
auditor challenged Neptune’s use of bill-and-hold sales and ultimately concluded that Neptune,
and thus Evoqua, improperly accounted for many sales and recognized revenue before Neptune
had shipped the products to its customers without proper application of relevant accounting
principles. When challenged by its independent auditor, Parekh and Evoqua failed to identify all
of the improper bill-and-hold transactions and erroneously recognized revenue from sales they
understood did not comply with GAAP.
8. During November 2017, Evoqua’s management made an internal decision that the
company would view the amount of improperly recognized revenue that was challenged by the
auditor as not being material. One month later, Evoqua filed with the Commission its first annual
report (known as Form 10-K) as a public company, and published the same inflated revenues for
its fiscal year 2017.  If not for the inclusion of the improper revenue, Evoqua would have missed
the preliminary financial results it had publicly disclosed in its registration statement and IPO
Prospectus. As a result, the Defendants misled investors and potential investors, giving the false
appearance that the company had met or exceeded the financial performance and revenue
forecasts it had publicly disclosed in its IPO Prospectus for the respective period.
9. The improper efforts to accelerate revenue recognition to meet financial targets in
fiscal year 2017 had a snowball effect. The millions of dollars of sales that were pulled into fiscal

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2017 from bill-and-hold transactions where the revenue should have been recognized in later
fiscal periods had to be replaced the following year in order to stay on the growth trajectory
established for the newly public company. In an effort to achieve Evoqua’s financial targets,
Neptune and Parekh again resorted to fraudulent sales practices and the untimely recognition of
revenue.
10. Previously, Neptune stored bill-and-hold product at its own warehouses and third-
party warehouses paid for by Neptune. But following the fiscal 2017 audit when Evoqua’s
independent auditor challenged Neptune’s practice of recognizing revenue for sales it did not
ship before quarter end, Neptune and Parekh modified the scheme and directed Neptune’s
operations personnel to ship product to third-party warehouses to store product purportedly at the
customer’s expense when customers were unwilling to accept shipment before the end of
Evoqua’s fiscal quarters. Neptune then recognized revenue for the product that was sitting in the
third-party warehouse (and thus not yet shipped to customers)—storage that was actually paid
for by Neptune, not the customer—and without applying the accounting principles applicable to
such transactions. As a result, Neptune, and ultimately Evoqua, improperly recognized revenue
in fiscal quarters earlier than permitted under GAAP during its 2018 fiscal year.
11. Evoqua’s violations of the securities laws were the result of intentional or reckless
conduct by Parekh, and negligent conduct at Evoqua’s corporate level in managing the financial
reporting and accounting controls processes. The misconduct continued through Evoqua’s first
year as a public company, resulting in inaccurate books and records and material misstatements
of Evoqua’s financial condition reported in its registration statement and IPO Prospectus, as well
as its Forms 10-K, 10-Q, and 8-K filed with the Commission between the end of 2017 and until
December 2018.

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12. By failing to disclose to investors (or in filings with the Commission) that Evoqua
reported uncompleted sales as revenue by misapplying bill-and-hold criteria, and by failing to
adhere to GAAP and its own accounting policies, Evoqua misled its investors and potential
investors about the true financial picture of the company.
13. Through its conduct, Evoqua violated Sections 17(a)(2) and (3) of the Securities
Act of 1933 (“Securities Act”) [15 U.S.C. §§ 77q(a)(2) and (3)], and Sections 13(a), 13(b)(2)(A),
and 13(b)(2)(B) of the Securities Exchange Act of 1934 (“Exchange Act”) [15 U.S.C. §§
78m(a), 78m(b)(2)(A), 78m(b)(2)(B)] and Rules 12b-20, 13a-1, 13a-11, and 13a-13 thereunder
[17 C.F.R. §§ 240.12b-20, 240.13a-1, 240.13a-11, 240.13a-13].
14. Through his conduct, Parekh violated Section 17(a) of the Securities Act [15
U.S.C. §§ 77q(a)] and Sections 10(b) and 13(b)(5) of the Exchange Act [15 U.S.C. §§ 78j(b),
78m(b)(5)] and Rules 10b-5(a) and (c), and 13b2-1 promulgated under the Exchange Act [17
C.F.R. §§ 240.10b-5(a) and (c), and 240.13b2-1]. He aided and abetted Evoqua’s violations of
Section 17(a)(2) of the Securities Act [15 U.S.C. §§ 77q(a)(2)] and Sections 13(a), 13(b)(2)(A),
and 13(b)(2)(B) of the Exchange Act [15 U.S.C. §§ 78m(a), 78m(b)(2)(A), 78m(b)(2)(B)] and
Rules 12b-20, and 13a-1, 13a-11, and 13a-13 thereunder [17 C.F.R. §§ 240.12b-20, 240.13a-1,
240.13a-11, 240.13a-13].
15. The Commission seeks:
a. entry of permanent injunctions prohibiting both Defendants from further
violations of the provisions of the federal securities laws alleged violated,
under Section 20(b) of the Securities Act [15 U.S.C. § 77t(b)] and
Section 21(d)(1) of the Exchange Act [15 U.S.C. § 78u(d)(1)];
b. imposition of civil monetary penalties against both Defendants under
Section 20(d) of the Securities Act [15 U.S.C. § 77t(d)] and Section
21(d)(3) of the Exchange Act [15 U.S.C. § 78u(d)(3)];

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c. disgorgement of Parekh’s i ll-  gotten gains plus pre-judgment interest under
Sections 21(d)(5) and (7) of the Exchange Act [15 U.S.C. §§ 78u(d)(5) and
(7)];
d. an officer and director bar against Parekh imposed under Section 20(e) of
the Securities Act [15 U.S.C. § 77t(e)] and Section 21(d)(2) of the
Exchange Act [15 U.S.C. § 78u(d)(2)], and
e. such other and further relief the Court may find appropriate under Section
21(d)(5) of the Exchange Act [15 U.S.C. § 78u(d)(5)].
JURISDICTION AND VENUE
16. This Court has jurisdiction over this action pursuant to Sections 20(b), 20(d), and
22(a) of the Securities Act [15 U.S.C. §§ 77t(b), 77t(d), 77v(a)] and Sections 21(d), 21(e), and 27
of the Exchange Act [15 U.S.C. §§ 78u(d), 78u(e), and 78aa]. Defendants have directly or
indirectly made use of the means or instruments of transportation or communication in, and the
means or instrumentalities of, interstate commerce, or the mails, or of the facilities of a national
securities exchange, in connection with the transactions, acts, practices, and courses of business
alleged in this Complaint.
17. Venue is proper in the District of Rhode Island pursuant to Section 22(a) of the
Securities Act [15 U.S.C. § 77v(a)] and Section 27 of the Exchange Act [15 U.S.C. § 78aa]
because certain of the acts, transactions, practices, and courses of business constituting the
alleged violations occurred in this District.
DEFENDANTS
18. Evoqua Water Technologies Corp. is a Delaware corporation headquartered in
Pittsburgh, Pennsylvania. Evoqua describes itself as a provider of water and wastewater
treatment solutions, offering a portfolio of products, services, and expertise to support industrial,
municipal, and recreational customers. Evoqua became a publicly-traded company on November

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2, 2017. Its common stock is registered with the Commission pursuant to Section 12(b) of the
Exchange Act and trades on the New York Stock Exchange under the ticker symbol “AQUA.”
19. Imran Parekh, age 41, is a resident of Hopkinton, Massachusetts. From 2016
through July 2018, Parekh was the Finance Director for the Americas at Evoqua’s Aquatics &
Disinfection (“A&D”) Division. As Finance Director, Parekh had responsibility for the financial
results of Neptune and other companies in the A&D Division. This included meeting internal
sales targets and reporting of actual results for the division. He was responsible for the
recognition of revenue for Neptune at Evoqua. Parekh ceased working at Evoqua in August
2018.
STATEMENT OF FACTS
I. Evoqua’s Business
20. During the time period relevant to this case, Evoqua was organizationally
structured into three business segments for the purpose of making operational decisions and
assessing financial performance: (i) Industrial, (ii) Municipal, and (iii) Products.
21. Evoqua has several division-level companies located throughout the United
States, including Neptune based in Coventry, Rhode Island, which Evoqua acquired in April
2016. Neptune is a manufacturer of water filtration and disinfection products for commercial,
industrial, and municipal water markets, such as large city drinking water, commercial
swimming pools, and theme parks. During the time period relevant to this case, Neptune took
customized orders that often exceeded $100,000 and sometimes exceeded $1 million.
22. Neptune’s main product at the time was the Defender filter, which is a
regenerative media filtration product used in the commercial aquatics market. Neptune sells
Defender filters to customers that build large water parks. Orders related to these large water

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parks typically required long lead times from when the order was placed until the time the
product was needed on-site. Because these lead times could exceed one year, Neptune often
carried project sales on Neptune’s backlog (expected future revenue) until the order was needed
by the customer.
23. Evoqua acquired Neptune in April 2016 for $283.7 million. Neptune was the
largest acquisition Evoqua has ever made. Evoqua stated at the time that it acquired Neptune to
complement Evoqua’s existing businesses and, consistent with Evoqua’s growth plan, to double
its business by the end of 2021.
24. After Evoqua acquired Neptune, revenue purportedly earned by Neptune was
reported up to Evoqua and included in Evoqua’s financial statements. Thus, the facts presented
below concerning the recognition and reporting of revenue by Neptune are, in fact, also revenue
recognized and reported by Evoqua.
II. Background on Revenue Recognition
25. Under US GAAP at the time period relevant to this case, revenue could not be
recognized until it was earned (generally speaking, when goods or services are transferred or
rendered) and realizable (generally speaking, when cash or a claim to cash is received in
exchange for goods or services).
26. Relatedly, there are four fundamental criteria that generally must be met to
recognize revenue:
i. persuasive evidence of an arrangement exists;
ii. delivery has occurred or services have been rendered;
iii. the seller’s price to the buyer is fixed or determinable; and
iv. collectability is reasonably assured.

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The occurrence of delivery is one of the four criteria. But if any of these criteria are not met,
revenue should not be recognized.
27. With respect to delivery, there are various considerations that could impact
whether delivery has occurred, one of which is bill-and-hold arrangements. A bill-and-hold
arrangement is a deal where a sale is recognized prior to delivery to the customer. Under GAAP,
in a bill-and-hold arrangement, revenue can only be recognized prior to delivery to the customer
if all of the following criteria are met:
i. The risks of ownership must pass to the buyer;
ii. The customer must make a fixed commitment to purchase the goods;
iii. The buyer, not the seller, must request that the transaction be on a bill and
hold basis and the buyer must have a substantial business purpose for
ordering the goods on a bill and hold basis;
iv. There must be a fixed schedule for delivery of the goods and the date must be
reasonable and consistent with the buyer’s business purpose;
v. The seller must not have retained any specific performance obligations such
that the earning process is not complete;
vi. The ordered goods are segregated from the seller’s inventory and are not
subject to being used to fill other orders; and
vii. The product must be complete and ready for shipment.
28. Taking all of the above into consideration, revenue recognition prior to delivery is
an exception, not the norm.

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29. According to Evoqua’s internal accounting policies, Evoqua sought to maintain
its financial statements in accordance with GAAP. The policies set forth that “[s]ales of goods
and services are recognized when persuasive evidence of an arrangement exists, the price is fixed
or determinable, collectability is reasonably assured and delivery has occurred or services have
been rendered.” The policies also stated, “for sales of aftermarket parts or products with a low
level of customization and engineering time, the Company recognizes revenue at the time title
and risks and rewards of ownership pass, which is generally when products are shipped or
delivered to the customer....” Evoqua published this revenue recognition policy in its IPO
Prospectus filed November 3, 2017 (more than a year and a half after acquiring Neptune).  It
again published this policy in its first Form 10-K filed with the Commission one month later
(December 4, 2017) and again in its Form 10-K for fiscal year 2018.
30. Evoqua, however, did not adhere to its own policy by recognizing revenue in its
products segment before title and the risks and rewards of ownership had passed to its customers.
Thus, its disclosures of its revenue recognition policies in its publicly filed financial statements
were materially misleading.
III. Beginning in Late 2016 and Continuing Through the November 2017 IPO, Evoqua
Improperly Recognized Millions of Dollars in Revenue
31. A company’s fiscal year (sometimes referred to as a financial year) is a 12-month
accounting period that a company uses for financial reporting purposes. A fiscal year can be
different from a calendar year. Evoqua’s fiscal year starts on October 1 and ends the following
September 30 (so, for example, its fiscal year 2017 began October 1, 2016 and concluded on
September 30, 2017).
32. Neptune’s first fiscal year as a part of Evoqua occurred in 2016. In advance of the
fiscal year-end in September 2016, Neptune raced to recognize revenue, often in violation of

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GAAP, and it failed to implement basic internal accounting controls relating to revenue
recognition. Senior managers in Evoqua’s financial department learned of financial reporting
problems at Neptune, but Evoqua failed to take steps to remediate the deficiencies, thus allowing
revenue recognition problems to exacerbate throughout Evoqua’s fiscal year 2017.
A. Neptune Improperly Recognized Revenue in Fiscal Year 2016

33.  During the fourth quarter of fiscal 2016 (ending September 30, 2016), Neptune
improperly recognized nearly $3.5 million in revenue from multiple sales under the close
supervision of Parekh. The revenue was improperly recognized for several reasons, including a
lack of documentation that the sales were realized or realizable and irreconcilable inconsistencies
about when Neptune shipped product to customers. For example, numerous transactions lacked
any written agreement or documentation such as a purchase order establishing that there was a
fixed agreement by the customer to buy the product. Certain shipping documents also indicated
that product for some sales shipped after the end of the quarter. In general, the shipping dates for
product listed on bills of lading (a detailed list of a shipment of goods), invoices, and inventory
records were inconsistent with each other.
34. At the time, Parekh was the finance director for Neptune, responsible for the
recognition of revenue at Neptune. Parekh approved and certified Neptune’s financial statements
for the purpose of consolidating Neptune’s financial statements into Evoqua’s.
35. There were no middle managers in the finance group at Neptune: all finance
group personnel reported directly to Parekh. Parekh was the ultimate decision maker inside the
Neptune finance group.
36. Parekh was also heavily involved in aspects of Neptune’s business outside of
traditional finance. For example, towards the ends of fiscal quarters, he often negotiated sales

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terms directly with customers. He also participated in weekly meetings with sales and operations
personnel, and people outside the finance group often sought his approval and direction.
37. Parekh knew or was reckless in not knowing that Neptune’s financial statements
included revenue from transactions that lacked basic written documentation to recognize
revenue.
B. Parekh Caused Evoqua to Improperly Recognize Revenue During the
First Two Quarters of Fiscal 2017

i. Neptune “Pulled Forward” Revenue Into Earlier Quarters

38. After Evoqua acquired Neptune, Evoqua’s products segment set aggressive
revenue goals for Neptune to achieve in fiscal year 2017. In an effort to meet these goals,
Neptune sought to accelerate sales orders expected in later quarters into earlier quarters.
39. Parekh engaged in a  recurring practice of “pulling forward” a future month’s sales
orders to meet a current month’s financial target, and then having to make up for the lost sales
that would have occurred and been recognized in the following months. The concept of pulling
forward sales into earlier periods was not a secret to senior management of Evoqua, as it was
frequently referenced in quarterly operations meetings as part of the plan to meet the current
quarter’s forecast. Pulling forward revenue is not necessarily improper so long as all of the
criteria for revenue recognition are met for the pulled forward sale. However, the practice results
in sales that could be recognized as revenue in later periods instead being recognized as revenue
in earlier periods, and creates pressure each subsequent period to make up for sales that were
pulled forward into a prior period to fill the resulting gap in revenues in the later periods. This
pressure can result in revenue being recognized before all of the criteria for revenue recognition
are met. This is what happened at Neptune under Parekh’s watch.

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40. Under historical practices at Neptune, the customer would have to accept
shipment of the product earlier than anticipated in order for Neptune to pull forward the sale.
Convincing a customer to do so could be a significant hurdle for several reasons if the customer
did not need the product until a future date. For example, shipping the product starts the clock on
how many days a customer has to remit payment. Also, some customers lacked space to store
Neptune’s products (which were quite large) securely and safely before installation.
41. By improperly recognizing revenue prior to shipment to the customer, Parekh was
able to circumvent some of these hurdles and enhance Neptune’s ability to pull forward sales.
42. In order to convince customers to place orders earlier than the customer desired,
Parekh caused Neptune to change the terms of standard sales arrangements. For example,
Neptune offered customers various discounts and extended payment terms. Neptune also offered
to store product for customers, and ship the product at a future time when customers actually
wanted delivery. Many of these altered sales arrangements did not permit Neptune to recognize
revenue under GAAP. Nonetheless, Parekh allowed such sales arrangements to proceed and
permitted the improper recognition of revenue.
ii. Wallace & Tiernan Improperly Recognized Revenue Using
“Ship in Place”

43. In February 2017, sales personnel at Evoqua division Wallace & Tiernan began
recognizing revenue improperly under a bill-and-hold arrangement that they referred to as “ship
in place.” In a ship in place deal, Wallace & Tiernan claimed to sell a customer product, but did
not ship the product to the customer until a later date when the customer actually wanted the
product.
44. A Wallace & Teirnan sales manager explained ship in place to a customer in an
email in February 2017. Under these arrangements, Wallace & Tiernan would “release” the

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product for shipment (that is, invoice the customer for the product), store the product in Wallace
& Tiernan’s factory, care for the product while in storage by rotating it once a month, defer
billing, and extend the warranty. The sales manager explained to the customer that it “would help
our bottom line.”  In emails to each other, Wallace & Tiernan’s sales staff characterized ship in
place as a bill-and-hold arrangement.
45. Throughout late February and early March 2017, a project manager and sales staff
at Wallace & Tiernan emailed Parekh and others about their plan to utilize ship in place with
different customers “to aid in revenue recognition.”
46. Parekh did not advise or instruct the personnel at Wallace & Tiernan that they
could not recognize revenue for sales transactions when they used ship in place as proposed.
However, as of the second quarter of fiscal 2017, Parekh knew, or was reckless in not knowing,
that under Evoqua’s revenue recognition policies and GAAP, revenue could not be recognized
until product shipped in those circumstances. For example, on November 2, 2016, in connection
with a potential sale of $250,000 of product, a senior employee at Neptune emailed Parekh and
one other person stating that Evoqua “can’t recognize the revenue until the equipment leaves our
factory...we are likely to be running up against a ‘bill and hold’ issue...we can invoice for the
equipment and collect the cash but we just won’t be able to recognize the revenue....[Parekh]
will, I’m sure know how to handle.”
47. The practice of ship in place later spread to Neptune. At Neptune, the term was
used interchangeably with another term, “ex works,” to mean a sale involving a bill-and-hold
arrangement.
C. Parekh and Neptune Begin to Manipulate the Shipping Term “Ex
Works” to Improperly Recognize Revenue Earlier Than Allowable Under
GAAP

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48. In fiscal year 2017, Neptune attempted to grow its revenue by accelerating the
completion of its product sales. Historically, Neptune generally recognized revenue when it
shipped product to customers. For most sales, Neptune used the shipping term “FOB,” or “free
on board,” which meant that Neptune arranged, contracted, and paid for shipping of the product
to the customer. Upon shipment, Neptune would invoice its customer (often including the costs
of shipping in the invoice) and recognize revenue on the transaction. This practice was consistent
with Evoqua’s revenue recognition policies and GAAP.
49. In practice, the date Neptune shipped the product to a customer was a function of
when the customer wanted delivery and when the product was ready for shipment. If product was
ready for shipment, but a customer was not ready to receive the product, then traditionally
Neptune held the ordered product in its inventory until the customer requested Neptune ship it.
50. As discussed above, the process of “pulling forward” sales typically involved
requesting that the customer agree to receive product before it wanted or could use the product.
By at least March 2017, Parekh allowed Neptune to invoice customers and recognize revenue
without shipping the product to customers. He often justified this practice through the use of the
shipping term “ex works.”
51. Like FOB, ex works is one of many International Commercial Terms, also known
as Incoterms, which define the responsibilities of sellers and buyers for the delivery of goods
under sales contracts. According to Evoqua’s guidance received by Parekh in November 2016,
ex works is a term used in shipping arrangements where the seller is “only responsible for
making the goods available at the seller’s premises. The buyer bears the full risk from the seller’s
premises to the final destination.”

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52. Under the ex works shipping term, Neptune was required only to make the
product available for the customer to pick up. The customer – not Neptune – was responsible for
arranging, contracting, and paying for shipping the product. While Incoterms define certain
responsibilities of buyers and sellers related to delivery of goods in a transaction, they do not
independently dictate the timing of revenue recognition or void the other necessary criteria for
revenue recognition.
53. By the end of March 2017, Parekh and others at Neptune working with Parekh
directed Neptune employees to include the ex works shipping term on various sales documents,
including invoices. Parekh and others at Neptune working with Parekh did this in order to
improperly recognize revenue on pending sales orders for which customers had asked for later
delivery.
54. For example, a senior employee at Neptune, with Parekh’s knowledge, changed
the shipping term of a sale destined for a project in Mexico at the end of the second quarter of
fiscal 2017 to ex works. The Neptune employee requested the change and offered the customer
numerous discounts to enter into the arrangement in advance of the customer needing the
product. The Neptune employee informed the customer that it did not need to pick the product up
before the end of the quarter (and the customer did not pick up the product before the end of the
quarter). Because Neptune issued an invoice and revenue was recognized at the end of the
quarter, this amounted to a bill-and-hold arrangement. Despite the product not being shipped
(meaning, the product was not picked up by the customer before the end of the quarter), and not
otherwise meeting the criteria for revenue recognition, Parekh and Neptune recognized revenue
from the sale in violation of GAAP.

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55. At the end of the second quarter of fiscal 2017, Neptune also improperly
recognized revenue by shipping product to a third-party warehouse because a customer was not
ready to receive the product. In this transaction, a customer had placed an order with Neptune for
product to be installed in a resort casino in New York. During March 2017, using modified sales
terms, Neptune persuaded the customer to allow Neptune to issue an invoice for approximately
$100,900 on the last day of the quarter, but hold the product at a third-party warehouse located in
Rhode Island. Neptune improperly recognized revenue on this sale because it was a bill-and-hold
arrangement that did not meet the applicable criteria under GAAP.
D. Neptune Increasingly Relied on “Ex Works” Deals And Other Deficient
Bill-and-Hold Arrangements to Improperly Recognize Revenue During
the Third and Fourth Quarters of Fiscal 2017 Leading Up To the IPO

56. Evoqua’s fiscal third quarter 2017 revenue numbers were especially important to
Evoqua because of the company’s plan to publicly offer its stock for the first time. In June 2017,
a Neptune sales representative asked a customer to place orders for product earlier than the
customer needed it so Evoqua could meet its revenue goals. The sales representative
acknowledged the pressure he and the company faced because of the IPO: “I hate asking for
favors but the truth is we are getting pressure from above because the S1 was filed for the IPO.
This quarter will determine the valuation of the company’s stock so you can imagine the push
coming downhill.”
57. The General Manager of Evoqua’s A&D Division emailed Parekh and others at
various times, emphasizing the need to meet targets and record revenue. For example, he stated
in an email on August 30, 2017, to sales representatives, Parekh, and others that “[w]e set an
aggressive target of $14M for aquatic project orders to get close to where we need to be as a
company ... we are $3.2M short of our target if all of the projects land ...we need to pull to close

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the $3.2M gap.”  On September 1, 2017, the General Manager stated, “expect the pressure to
ramp up through the month as the timing for the IPO gets firmed up and the company wants to
demonstrate a solid performance....” As a result of this internal pressure, Parekh and Neptune
increasingly engaged in what they referred to as “ex works” deals to artificially boost revenue
numbers at the end of fiscal quarters during 2017.
58. In a typical ex works deal, Neptune asked a customer to enter into a sales
arrangement before the customer wanted the product or before the purchase request was
finalized. Neptune would then store the product at its facility or at a third-party warehouse to be
shipped to the customer after quarter end, while recognizing revenue prior to the end of the
quarter.
59. Parekh directed Neptune employees on how to handle ex works deals because the
employees were unfamiliar with them. In a September 2017 email, Parekh provided his
subordinates instructions, including items that were “needed for ex works jobs,” and directed
them to “let me know if there were any questions.” Parekh’s instructions failed to adhere to
revenue recognition requirements under GAAP, however. Parekh knew, or was reckless in not
knowing, that his instructions failed to adhere to GAAP because at a minimum his instructions
failed to include relevant guidance received from an accounting colleague.
60. In order to entice Neptune’s customers to enter into what amounted to a deficient
bill-and-hold arrangement, Neptune typically offered customers discounts, extended payment
terms, and the right to exchange product without paying the standard re-stocking fee. These
revised terms posed little to no risk to the customer, because they were not obligated to pay
Neptune until a date in the future that corresponded to when they actually needed the product.

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61. In certain instances, Neptune issued invoices prior to the customer finalizing its
order. For example, one customer voiced its objection to an ex works deal because Neptune
billed the customer for product in August 2017 in the approximate amount of $150,000 before
the design drawings for construction of the customer’s water park had even been approved. In an
email forwarded to Parekh in December 2017, the customer noted “it would help if you did not
invoice us until after we send you a [purchase] order and until after the submittals are approved”
and referenced another project for which the final approved design involved $100,000 in changes
that occurred during the submittal process.
62. During negotiations with customers in June 2017, Parekh and a senior employee
at Neptune stated that the shipping term on purchase orders needed to be changed to ex works.
But the use of the ex works shipping term did not alter the fact that Neptune intended to make
arrangements to ship the product. For example, in an email on June 19, 2017 to a sales manager
and Parekh concerning a product destined for a waterpark to be built in China, the senior
employee reassured the sales manager that Neptune was paying for shipping despite the use of
the ex works shipping term. The senior employee further elaborated in a subsequent email later
the same day to Parekh and two sales managers that ex works needed to be added to the purchase
order, but that Neptune “will arrange for the shipping once the customer requires it.”
63. Neptune and Parekh’s use of ex works was a ruse to fraudulently recognize
revenue prematurely because, as Parekh knew, or was reckless in not knowing, if Neptune’s
customers did not agree to be responsible for shipping the product, Evoqua’s policies and GAAP
did not allow revenue to be recognized prior to shipping. The use of the term ex works was
merely a contrivance: Neptune stored customer product at its facility or at third-party warehouses
until customers requested Neptune deliver the product to them under Neptune’s standard FOB

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shipping arrangement. Thus, despite Parekh and Neptune’s requirement that sales documentation
contain the Incoterm ex works, Neptune retained responsibility for shipping the product to the
customer. As a result, the risk of loss and ownership of the products stored by Neptune never
transferred to the customer, and thus Neptune (and, as a result, Evoqua), could not properly
recognize revenue prior to shipment.
64. Parekh routinely treated product for ex works deals remaining in Neptune’s
possession as subject to Neptune’s ownership and control. For example, in the June 2017
transaction with the customer from China discussed above, Neptune entered into an agreement
for the sale of more than $900,000 in product using the ex works shipping term. Because there
was a heightened risk that Neptune and Evoqua might not be able to collect payment from the
customer on the sale, Neptune was required to secure a letter of credit from a bank that would
assure payment. Prior to the sale, however, in an email on June 7, 2017, Parekh advised the sales
agent that Neptune did not require the letter of credit before the execution of the sales agreement
or before the end of the quarter. Parekh stated that the “latest we can hold off for the [letter of
credit is ] in [m]id July.”  Neptune proceeded forward with the recognition of revenue, but the
customer did not provide a letter of credit for the sale before June 30, 2017. Despite not being
reasonably assured of payment by the customer (because there was no letter of credit), Parekh
and Neptune recognized revenue from the sale in the third quarter of fiscal 2017 contrary to the
requirements of Evoqua policy and GAAP.
65. In October 2017, Neptune had still not delivered the product to the customer for
this sale, and the customer had still not provided a letter of credit pursuant to the terms of the
agreement. In emails in September and October 2017, Parekh told the sales agent that Neptune
would not release the product to the customer without the letter of credit. In his October 2017

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email, Parekh stated that “if they do not pay then we can bring shipment back.” Had the
customer assumed the risks and rewards of ownership when the product was ready for pick-up,
purportedly in June 2017, the product would have belonged to the customer as of that date and
Neptune would not be able to withhold the product from delivery to the customer. Because
delivery had not yet occurred and the other payment contingencies were not resolved before the
end of the June 2017 fiscal quarter, Parekh knew, or was reckless in not knowing, that the risk
and rewards of ownership could not have passed to the customer in June 2017 or even by the end
of the fiscal year 2017. Despite this, Parekh caused Neptune (and thus Evoqua) to improperly
recognize revenue for this order.
66. Another of Neptune’s customers submitted five purchase orders in the third and
fourth quarters of fiscal 2017 following a June 2017 email from a Neptune sales representative
requesting that the customer “help” Neptune out. Two of these purchase orders were for
prospective projects for which the customer explicitly told the Neptune sales representative not
to ship the product being ordered. In fact, Neptune did not ship any of the orders in the fourth
quarter ended September 30, 2017, but it improperly recognized more than $700,000 of revenue
in that quarter on these transactions.
67. In late October 2017, following receipt of the invoice for certain of those orders,
the customer inquired of the Neptune sales representative, “The [ ] jobs are just arriving this
week and next, so the Net 90 should be from Oct 30 not September.” That is, the customer
believed that their obligation to pay for the product occurred when the product actually shipped
(or was delivered), consistent with their prior dealings with Neptune. The email from the
customer was forwarded to Parekh in October 2017, but Parekh made no adjustments to reverse
the revenue that had previously been improperly recognized in the prior period.

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68. Under Parekh’s supervision, Neptune improperly recognized nearly $14.5 million
of revenue over the course of fiscal year 2017 for products that were not shipped in that time
frame, including ex works deals. The following chart summarizes these transactions by quarter.
Period # of Orders
Inappropriate
Revenue Amount
($ millions)
Q1 FY17 3  $                 3.1
Q2 FY17 4                     1.5
Q3 FY17 9                     2.0
Q4 FY17 39                     7.9
  55  $               14.5

69. While each transaction involves unique circumstances and documentation, the
underlying transactions follow a general pattern of Neptune personnel soliciting a customer to be
invoiced early in exchange for additional discounts and extended payment terms, and then
improperly recognizing revenue prior to shipment without assessment of the revenue recognition
criteria.
E. Parekh Also Utilized Ex Works Deals At Another Division-Level
Company

70. In July 2017, Evoqua acquired Olson Irrigation Systems (“Olson”) and integrated
it as a division-level company into Evoqua’s A&D Division, for which Parekh was the Finance
Director. In an email dated September 6, 2017, Parekh proposed to a senior manager in Evoqua’s
products segment that Olson engage in an “early buy program.” The program was designed to
“enhance September revenue” by about $180,000. Parekh explained that Evoqua would either
ship product to customers in September (the “preferred” option) or “if there is a delay in
shipping, [the product] would be held in our factory Ex Works...to be shipped out over the next
60 days.” Thus, Parekh was using the ex works shipping term to improperly recognize revenue
for product that Evoqua could not or would not ship prior to the end of the reporting period.

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F.   Evoqua’s Public Filings with the SEC Contained Inflated Revenue as a
Result of Parekh’s Misconduct

71. Evoqua’s October 18, 2017 and October 20, 2017 Form S-1/A Registration
Statement ( declared effective on November 1, 2017) and its November 3, 2017 IPO Prospectus
publicly reported revenue figures that were inflated with improperly recognized revenue. In its
registration statements and prospectus, Evoqua included in its financial statements $5.7 million
of revenue it had not earned for the first three quarters of fiscal 2017 because the putative
revenue was for product that had not shipped to the customer and otherwise failed to meet the
requirements of GAAP.  As a result, the registration statement and the IPO Prospectus did not
contain accurate figures for the amount of revenue and earnings that Evoqua made for these
respective periods.
72. In addition, the registration statements and IPO Prospectus both included an
estimated $8 million of revenue that Evoqua expected to be recognized in the fourth quarter of
fiscal 2017 for product that had not shipped to the customer and otherwise failed to meet the
requirements of GAAP.
73. As further discussed below, Evoqua subsequently filed its fourth quarter results
and full year 2017 results, including the improperly recognized revenue, in a Form 8-K and Form
10-K filed with the Commission on December 1, 2017 and December 4, 2017, respectively. By
including the improperly recognized revenue, Evoqua’s revenue and Adjusted EBITDA (or
“Earnings Before Interest, Taxes, Depreciation, and Amortization,” a key financial metric used
by the company) results were in line with the forecasted range presented for the respective
periods; without the improperly recognized revenue, the results would not have been in line with
the forecasts.  As a result, Evoqua’s fraudulently inflated revenue numbers were materially
misleading to investors and potential investors.

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74. The following chart represents how, without the fraudulently inflated revenue,
Evoqua’s financial results would have been below the forecasted range that had been first
disclosed in the November 3, 2017 IPO Prospectus and below the consensus estimates predicted
by third-party analysts who followed Evoqua’s financial performance at that time--information
that would have been important to investors.

Fourth Quarter 2017 Fiscal Year 2017
($ millions)
Revenue Adj. EBITDA Revenue Adj. EBITDA
Preliminary Range, per Nov. 2017 IPO Prospectus $354-$357 $69-$72 $1,245-$1,248 $205-$208
Analyst Consensus, referenced by Evoqua in Nov. 2017 $356 $71 $1,247 $207
As Reported, per Form 8K and Form 10-K in Dec. 2017 $357 $71 $1,247 $208
As Adjusted, to correct inappropriate revenue $349 $67 $1,236 $200
As Adjusted, compared to Preliminary Range
($5) ($2) ($9) ($5)
As Adjusted, compared to Analyst Consensus
($7) ($4) ($11) ($7)

IV. Evoqua Discovers Parekh’s Misconduct And Reports the Improper Revenue in
Public Filings with the SEC
A. An Internal Evoqua Hotline Complaint Alleged that Neptune Was
Manipulating Revenue
75. In or around November 2016, an employee in Evoqua’s internal audit group was
made aware of concerns that Neptune management was manipulating shipping terms to
improperly recognize revenue prior to shipment in fiscal year 2016. The employee subsequently
documented the concerns in Evoqua’s internal compliance system, also known as a hotline or
helpline system, which is an electronic reporting tool available to Evoqua employees to express
concerns for further review and consideration by Evoqua’s compliance department. The
allegation documented into the internal hotline complaint specified that Neptune finance people,
including Parekh, manipulated certain terms “in the system [that changed] the recognition of
revenue from October to September even though the products were not picked up.”
76. A few months later, Evoqua’s compliance department initiated an investigation
into the hotline complaint. The internal audit group concluded its investigation in March 2017.

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On March 14, 2017, Evoqua’s compliance personnel emailed the results of the investigation to
several of Evoqua’s finance executives. The compliance department found Neptune’s
documentation of sales arrangements was lacking or contained inconsistencies in shipping dates
(thus identifying several areas for improvements in Neptune’s revenue recognition process). For
example, the investigation found: (i) 10 of the 16 transactions, or 63% of the transactions
selected for review by the compliance department, did not have any purchase order or contract,
(ii) 13% of the transactions had a ship date on the bill of lading that was one day later than the
ship date listed on the invoice, and (ii) 100% of the sample selections “had inventory ship post
dates that were three or more days later than the ship date listed on the invoice.”
77. Despite the findings from the internal investigation, Evoqua failed to
acknowledge that it had erroneously recognized revenue from these transactions, evaluate
whether the errors were material, or assess whether the identified documentation deficiencies and
discrepancies from 2016 also impacted the first half of fiscal 2017. Instead, the company
continued to improperly recognize revenue during fiscal 2017 as discussed above. Evoqua failed
to verify that process improvements were sufficiently implemented at Neptune such that revenue
recognition was in compliance with GAAP going forward.
B. Evoqua’s Independent Auditor Learns of the Hotline Complaint and
Neptune’s Use of Ex Works During a Routine Audit

78. Public companies are required to have their financial statements, and the
information and documentation behind them, audited by an independent auditor. Evoqua retained
an independent auditor beginning in time periods before it became a public company in
November 2017, and this independent auditor continued to audit Evoqua’s financial statements
after its IPO. In connection with standard fiscal year end audit procedures in September 2017,
and as part of their normal procedures to review anything to do with accounting or fraud,

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Evoqua’s independent auditor learned of the November 2016 hotline complaint. The auditor
requested information from Evoqua, including workpapers and documentation related to the
internal investigation that was conducted, as well as the memo documenting the findings and
conclusion.
79. On September 7, 2017, Evoqua’s compliance manager anticipated that the
independent auditor might want to evaluate whether the process improvements identified from
the investigation into the 2016 hotline complaint were implemented,  and suggested that Parekh
and others be prepared. Parekh was told by Evoqua’ compliance manager that the independent
audit team would “most likely be testing a hefty sample selection for cut-off procedures.” Cut-
off procedures are audit procedures designed to review specific transactions at the end and
beginning of a financial reporting period to ensure the criteria for revenue recognition was met in
the period revenue was recognized. However, Parekh did not initially advise anyone at Evoqua
or the independent auditor regarding the change to timing of revenue recognition due to
Neptune’s e x w orks deals, which could have impacted the independent auditor’s cut-off
procedures.
80. In its initial review for the audit for the fiscal year ended September 30, 2017, the
independent auditor found a large percentage of revenue recognized right before the end of the
fiscal year. The auditor requested from certain customers an “audit confirmation letter,” which is
an inquiry sent to a customer to establish the contents of the accounting records of the entity
being audited.
81. In response to this request, the auditor received an email from a Neptune customer
on November 2, 2017 expressing concern that Neptune recognized revenue in September 2017
for sale of a product the customer still had not received over a month later.  Around this time, the

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independent auditor informed Evoqua finance personnel that Parekh told the independent auditor
that Neptune was using the ex works Incoterm and invoicing customers when the product was
ready and held a t Neptune’s warehouse. As a result of its initial work, the independent auditor
became concerned because almost all of the transactions they selected for review had the ex
works term, and almost all of the product (approximately $9 million of revenue) had not been
shipped as of year-end. The independent auditor recognized this as a bill-and-hold issue.
82. The independent auditor then expanded the scope of its testing of Evoqua’s sales
transactions and revenue recognition, but limited its review to transactions recognized as revenue
in August and September 2017 based on its mistaken understanding that the bill-and-hold
transactions started at that time. Evoqua did not disclose to the independent auditor the full
extent of the use of bill-and-hold transactions. As a result, the independent auditor’s review did
not include all of the improper bill-and-hold deals for fiscal year 2017.
83. Parekh and Evoqua senior management worked closely with the auditor in their
transaction-by-transaction review. Parekh collected and distributed documentation on more than
30 transactions, and he oversaw the completion of a bill-and-hold checklist to determine whether
the criteria for revenue recognition had been met. In addressing the auditor’s concerns, Evoqua
senior management became aware of the extent and magnitude of Neptune’s improper bill-and-
hold revenue recognition practice.
84. Most of the transactions that had been recognized as revenue, but not yet shipped,
were found by the independent auditor to not meet the criteria for revenue recognition for the
quarter ended September 30, 2017. The auditor did not object to some of the remaining
transactions due, in part, to erroneous or incomplete information provided by Evoqua. For
example, Evoqua recognized approximately $800,000 of revenue on a purported sale to a

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European customer (“Customer A”). Parekh had reported to the independent auditor that
Neptune shipped the product to Customer A a few days after September 30. But Parekh knew, or
was reckless in not knowing, that this product had shipped to a third-party warehouse at
Neptune’s expense, and not to Neptune’s customer.
85. In an email from September 2017 in which Parekh provided instructions to his
subordinates for ex works jobs, he also told his subordinates that they needed a “[p]acking list
with items that are ready and quarantined (Here or at [the third party warehouse]).”  Later in
February 2018, a Neptune shipping manager sent Parekh a list of ex works “jobs that are still at”
the third-party warehouse (amounting to millions of dollars of product). Included within the list
was the product for the reported sale to Customer A. After Parekh left Neptune, his successor
located in August 2018 product purportedly sold to Customer A still sitting in the third-party
warehouse. When Parekh’s successor called Parekh and confronted him with the information that
Neptune product reportedly sold to customers was sitting in a warehouse in Rhode Island, Parekh
acknowledged that he knew about the product sitting there. Parekh told his successor that he had
planned to write-off or reverse the revenue associated with the product in the third-party
warehouse, but had not yet done so before leaving Evoqua. Parekh therefore knew that Neptune
was using a third party warehouse to store ex works orders. And thus Parekh knew, or was
reckless in not knowing,  that the use of the third party warehouse was equivalent to storing on
site at Neptune. Despite this, Parekh represented to the auditor that shipment to the third party
warehouse constituted shipment to the customer. Based on Parekh’s inaccurate representation,
the independent auditor concluded erroneously that revenue had been properly recognized.
86. Parekh also provided other incorrect information to the auditor during its audit of
Evoqua’s revenue and sales transactions. For example, on September 30, 2017, Neptune invoiced

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a customer (“Customer B”) approximately $114,000 for the purpose of preserving a discount for
Customer B. This was not a real sale at that time, however, because Customer B did not submit a
purchase order to Neptune until afterwards on October 6, 2017. Neptune also agreed with
Customer B, in an email dated October 25, 2017, that it would send Customer B the “actual
invoice” once the filter shipped from Neptune to Customer B. Neptune shipped the filter to
Customer B in February 2018. Internally, Customer B recorded that the invoice for the sale was
dated February 15, 2018.

87. Nonetheless, Parekh informed the independent auditor via email on November 17,
2017 that Neptune had shipped the product for the sale to Customer B in September 2017 before
the end of Evoqua’s fiscal year. Parekh also informed the auditor that Evoqua properly
recognized revenue from the purported sale. As backup support, Parekh provided the auditor the
sham September 30, 2017 invoice mailed to Customer B and a shipping document purportedly
reflecting that Neptune shipped the order to Customer B on September 14, 2017. The shipping
document that Parekh included as support, however, was for a different project.
88. In November 2017, the independent auditor ultimately determined that Neptune
had improperly recognized $4.8 million of revenue in September 2017, and attributed this to
Neptune’s misunderstanding of the ex works shipping term. The auditor’s findings further
reflected that “when a company utilizes [ex works] shipping terms, the transaction must be
analyzed as a bill-and-hold transaction” but “management had not done this for many of the
transactions.”
89. Evoqua determined that this $4.8 million figure was not material to its fiscal 2017
financial results, without any documentation of the qualitative and quantitative factors that must
be considered in assessing the materiality of an error to the financial statements.

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90. Additionally, the quantified misstatement of $4.8 million excluded $1.5 million of
additional revenue that was included in the scope of the ex works review and that was recognized
prior to shipment, but that the independent auditor concluded was “good revenue.” The $4.8
million error was lower than the initial assessment made by Evoqua’s senior finance personnel,
yet Evoqua’s senior management undertook no effort to understand why the $1.5 million of
additional revenue was “good revenue” at  the time. Upon a subsequent review of the underlying
transactions performed by Evoqua years later during the Commission’s investigation, Evoqua
concluded that these transactions also failed to meet the criteria for revenue recognition in fiscal
2017. This additional amount, which would have resulted in an aggregate $6.3 million revenue
misstatement, was not considered in Evoqua’s materiality determination. As a result, Evoqua
included in its first filings of financial results as a public company millions of dollars of revenue
and earnings that did not comply with GAAP.
V. The Improperly Recognized Bill-and-Hold Transactions Resulted in Material
Misstatements in Evoqua’s Filings with the Commission
91. One month after the IPO, Evoqua filed its Form 10-K with the Commission in
December 2017, the company’s first annual filing as a public company. In the Form 10-K,
Evoqua reported as revenue the improper transactions identified by the independent auditor.
Evoqua senior management made the decision to not adjust the revenue in the Form 10-K (that
is, Evoqua did not back out the improper transactions that had already been identified). Had
Evoqua done so, its reported revenues would have fallen below the range of the estimated
revenue for the fourth quarter and full year of fiscal 2017 that it had provided to the financial
markets in its registration statements and IPO Prospectus previously filed with the Commission.
As a result, Evoqua reported earnings within the range forecasted in its November 2017 IPO

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Prospectus. If not for the improper bill-and-hold transaction revenue, Evoqua would have missed
the forecast.
92. Evoqua also did not disclose to the investing public that Neptune had adopted a
practice of reporting revenues for bill-and-hold transactions or that the practice deviated from
GAAP and Evoqua’s own revenue recognition policies. Nor did Evoqua disclose that such
reporting of bill-and-hold transactions had enabled Evoqua to meet or exceed the financial
forecasts it had announced to investors in the IPO Prospectus or that the impact of accelerating
revenues could have an adverse impact on future results.
93. Further, the quantified $4.8 million misstatement that was determined by Evoqua
senior financial executives to be immaterial in 2017 was only a fraction of the total misstatement
for the period. In fact, years later, during the Commission’s investigation, Evoqua concluded that
it improperly recognized revenue on significantly more transactions, comprising more than $18
million of revenue during the 2017 fiscal year, primarily through the improper use of bill-and-
hold transactions.
94. In sum, in fiscal year 2017, Parekh caused the A &D Division (and thus Evoqua)
to improperly recognize net $11.7 million of revenue (which includes the partial offset for
recognition of revenue that was found to have been improperly recognized in fiscal year 2016).
Had Evoqua excluded this amount from its financial results in the period, as it should have,
reported revenues and Adjusted EBITDA each would have fallen below the respective range
Evoqua provided in its IPO Prospectus. In addition, consolidated Adjusted EBITDA would have
been approximately $4.4 million less (6%) and $7.6 million less (3.6%) than what was reported
for the fourth fiscal quarter and full fiscal year 2017, respectively,  and the Adjusted EBITDA for
the business segment that included Neptune would have been approximately 18% and 10% less

33

than what was reported for the fourth fiscal quarter and full fiscal year 2017, respectively. Thus
the impact of the improperly recognized revenue was both qualitatively and quantitatively
material to Evoqua’s financial results.
VI. Evoqua Failed to Disclose in its Fiscal Year 2017 Form 10-K That It Lacked
Sufficient Internal Controls To Ensure That Revenue Was Properly Reported
95. In October 2017, Parekh and senior financial management of Evoqua were aware
of the high-risk findings of the internal controls gaps at Neptune. More specifically, on October
15, 2017, Evoqua’s internal audit department distributed to various recipients the findings of the
fiscal 2017 internal controls testing to discuss the results and a plan for remediation of identified
deficiencies. The findings included that Neptune’s accounting system “does not have a
systematic control to prevent invoice generation and revenue recognition prior to shipment [and]
[c]urrently there is not a process in place to ensure orders which have not shipped are not
invoiced.” The recommendation from Evoqua’s internal audit department was that “management
should implement a control to review shipments at month end to ensure revenue is recognized in
the proper period. Evidence of this review should be formally documented and maintained.”
These findings confirmed that: (a) it was not expected that revenue would be recognized prior to
shipment, (b) Evoqua senior financial management was made aware of the risks that existed that
revenue could be recognized prior to shipping, and (c) it was necessary to put a process in place
to ensure that recognition of revenue prior to shipment did not happen. However, despite the fact
that this revenue recognition risk at Neptune had been identified and had become a reality in
fiscal 2017, Evoqua failed to disclose that it possessed a material weakness in its internal
controls for financial reporting in its fiscal 2017 Form 10-K. A material weakness is a
deficiency, or combination of deficiencies, in internal control over financial reporting, such that
there is a reasonable possibility that a material misstatement of the company’s annual or interim

34

financial statements will not be prevented or detected on a timely basis. Disclosure of a material
weakness could have alerted investors about the deficient state of the internal control
environment at Evoqua and of the resulting risks. It also would have required Evoqua to be held
accountable for remediating the material weakness by implementing a plan and timeline for
remediation. Failure to report a material weakness was misleading about the company’s control
environment. Further, an effective process was not put in place in fiscal 2018 and revenue
continued to be improperly recognized prior to shipment at Neptune.
VII. Evoqua Did Not Timely Inform Its Independent Auditor of A 2017 Hotline
Complaint
96. At the time that Evoqua’s independent auditor was conducting its review of the
September 2017 revenue transactions at Neptune, Evoqua received another internal hotline
complaint concerning Neptune. On November 8, 2017, this complaint alleged that “empty crates
in beaver dam counted as finished product at the end of the fiscal year [2017] along with a
questionable ‘ex works’ policy to create revenue for product not shipped.” Beaver Dam,
Wisconsin is another location of the Neptune division-level company for which Parekh was the
finance director. Evoqua senior management w ere all aware of the allegation.
97. Evoqua engaged a regional consulting firm to investigate the allegations. The
consulting firm performed site visits in mid-November 2017 at Neptune’s two locations (Rhode
Island and Wisconsin). The firm noted that a late September order may have been unpackaged
but still counted as revenue before it was repackaged, as well as several improper ex works
transactions. The firm was engaged in its investigation of the allegations about improper revenue
recognition involving ex works transactions at the exact same time as Evoqua’s independent
auditor was questioning Evoqua about the same practice. A draft report of the investigation

35

findings was dated November 22, 2017, and the final report was dated December 1, 2017, three
days before the fiscal 2017 financial statements were filed on December 4, 2017.
98. Evoqua’s senior financial executives did not disclose to the independent auditor
the allegations of the November 2017 hotline complaint or the findings of the firm investigating
the complaint prior to the firm’s issuance of its audit opinion. Evoqua’s senior financial
executives did not disclose the allegations or the existence of the investigation to the independent
auditor prior to Evoqua publicly filing its financial statements for fiscal year 2017. The
disclosure of a suspected fraud to the independent auditors could have reasonably impacted the
scope of the fiscal 2017 audit.
99. When the independent auditor did learn of the complaint as part of their January
2018 review of Evoqua--after the filing of the 2017 Form 10-K--it communicated its concerns to
Evoqua that the company should have timely informed the auditor about the allegations. The
auditor advised Evoqua that it is critical for the independent auditor to be informed of fraud
allegations on a timely basis.
VIII. Evoqua Continued to Improperly Recognize Revenue Through Bill-and-Hold Deals
In Fiscal Year 2018
100. The effects of pulling forward revenue into fiscal 2017 and improperly
recognizing revenue prior to shipment had a detrimental impact on Evoqua’s first fiscal quarter
of 2018. For example, as reported in Evoqua’s Form 8-K and Form 10-Q filed with the
Commission on February 6, 2018 and February 7, 2018, respectively, revenues in the first
quarter of 2018 for the reporting segment that included Neptune decreased $1.5 million, or 2.2%,
from the corresponding quarter in the prior year. Evoqua informed the public that this was an
“expected decline in revenues... primarily due to the timing of larger projects completed in the
first quarter of the prior year in the Aquatics product line.”  However, the larger projects

36

recognized in the first quarter of the prior year included a $2 million project that was improperly
recognized in the first quarter of 2017 at Neptune. Had Evoqua not inflated its 2017 financial
results by nearly $12 million, including the $2 million improperly recognized in the first quarter
of 2017, revenues in the first quarter of fiscal 2018 would have increased by nearly $5.3 million,
or 7.7%, in the first quarter of 2018 over the prior year, a materially different result for the
segment than what was reported. Thus the improper revenue recognition in fiscal 2017, was
causing 2018 financial results to appear worse than they otherwise would have.
101. In early 2018 (a few months after the independent auditor informed Evoqua that
Neptune improperly applied the shipping terms to revenue recognition), Parekh developed
another means to book revenue prior to shipping d espite having been specifically apprised of the
extensive bill-and-hold criteria in November 2017 and despite Evoqua’s internal audit findings in
October 2017 that there should be a control put in place at Neptune to ensure revenue was not
recognized on orders that hadn’t shipped.
102. Specifically, on November 8, 2017, following the identification of the ex works
issue, the i ndependent auditor sent Evoqua its firm’s guidance on bill-and-hold transactions,
which included consideration of ex works terms. This guidance was shared with Parekh, and
specifically applied by Parekh and Evoqua to evaluate the ex works transactions that were
reviewed during the audit that had been recognized prior to shipment in 2017. In addition to the
extensive bill-and-hold criteria, the guidance stated:
Because of the restrictive nature of the criteria discussed above, bill and hold transactions
rarely result in revenue recognition prior to the customer taking delivery of the goods
(and then only if all of the other basic criteria for revenue recognition have been met).

As a result, Parekh and Evoqua were on notice at least as of November 2017, not only of the
extensive bill-and-hold criteria, but of the fact that, “prior to shipment, the arrangement should

37

be evaluated using the bill-and-hold criteria” and that “bill and hold transactions rarely result in
revenue recognition prior to the customer taking delivery of the goods.” In other words, Parekh
knew, or was reckless in not knowing, the bill and hold criteria well enough to prevent any
mistaken application of the factors going forward.
103. In   February and March 2018, Parekh directed Neptune personnel to introduce a
“warehouse deal” to its customers whereby Neptune would send product to a third-party
warehouse for storage. This was not an entirely new concept. In fiscal 2017, Neptune had
shipped purportedly sold product to the same third-party warehouse, including to “quarantine”
customer orders with ex works terms until the customer was ready for delivery. Parekh, however,
was on notice following the fiscal 2017 audit that recognizing revenue prior to shipping to the
customer was prohibited unless specific GAAP criteria were satisfied. As a work around, Parekh
developed a variation on the quarantine deal whereby Neptune would ship product to a
warehouse under terms it negotiated but which Neptune’s customers paid.
104. A February 26, 2018 email from Neptune’s logistics manager to his contact at the
third-party warehouse described the warehouse deal as “an option we want to present to
customers to try and pull in some jobs.” On February 28, 2018, Neptune’s logistics manager
provided the rates he obtained on Parekh’s behalf for the storage proposal to Parekh. On March
16, 2018, Parekh sent an email to Neptune’s customer service and support team director for the
Americas region, with the subject line “Warehouse deal,” and included a proposal to “Business
Partners” regarding “a viable and economic warehousing option” for the third party warehouse
provider and proposed monthly rates for “warehousing.”
105. In practice, however, the “warehouse deal” was not appealing to customers who
did not want to pay for storage and subsequent shipping, assume risk earlier than necessary, or

38

handle logistics. Instead, Neptune shipped product to the third-party warehouse at the end of
reporting periods; paid for shipping to, and storage at, the warehouse; and recognized revenue on
the sales, even though the customer had not taken the product, had not assumed risk of loss, or in
some cases had no present obligation to pay for the order.
106. For example, Evoqua recognized revenue on the sale of product for the
construction of two animation-themed waterparks in late March 2018 during the second quarter
of fiscal year 2018. One sale totaled approximately $142,000 and the second totaled
approximately $33,200. Neptune shipped the products for both sales to a t hird-party warehouse
in March 2018. In April 2018, during the third quarter of fiscal year 2018, one of Neptune’s
shipping managers emailed the warehouse and directed them to ship the product to the customer
locations located in California and Texas, respectively. Neptune paid for the storage and
shipping of the product.
107. Another example of a 2018 improper bill-and-hold transaction involved a sale to a
customer in China. In order to pull forward and prematurely recognize nearly $3 million on an
order to the customer in China, on May 24, 2018, Neptune offered the warehouse deal to “lock in
pricing” and “avoid the price increase ... for shipments that occur after June 30
th
.” Neptune also
“made arrangements with a local warehouse that will store [the] customer equipment at very
competitive rates.” Parekh sent an email on June 11, 2018 with a list of proposed terms to
Neptune’s senior manager in China, including offering an additional $50,000 discount, which
covered the “cost of the warehouse with 3 month storage, freight to Shanghai and full
insurance.” Despite the appearance that the customer would pay for storage pursuant to the
warehouse deal, Neptune was effectively paying for storage via the discount offered to the
customer. Nevertheless, the third-party warehouse used for storage confirmed it only billed

39

Neptune for storage. Additionally, almost the entire payment was contingent on shipment from
the warehouse to the end customer site or thereafter.
108. While Parekh was involved in the negotiation of the terms, the transaction was
also visible to other Evoqua personnel. Neptune (and thus Evoqua) recognized the revenue in the
quarter ended June 30, 2018 without assessment of the bill and hold criteria, or other criteria for
revenue recognition, which it would have failed. Thus, Neptune was in substance doing in fiscal
2018 the same as what it did in fiscal 2017 when it improperly relied on the ex works shipping
term to recognize revenue prior to shipping. This transaction would have failed bill and hold
criteria because Neptune, not the customer, was proposing use of a warehouse; there wasn’t an
otherwise substantial business purpose for the customer having the goods stored in a warehouse;
and there were payment contingencies including that more than 95% of the payment was
dependent on receipt and acceptance of the products by the end-user. Thus,  risks and rewards of
ownership had not passed when the product shipped to the warehouse in June 2018.
109. Parekh offered these terms to entice the customer because this sale was critical to
Evoqua’s fiscal third quarter ending June 30, 2018. On June 19, 2018, in response to concerns
from the local Neptune team in China about the deal, Neptune’s general manager stated in an
email that Parekh was copied on, “[w]ithout this order our quarter will be a disaster...[Parekh]
and I will call you at 8:15 to discuss options.” On June 29, 2018, the same day revenue was
ultimately recognized for the order, a senior executive of Evoqua congratulated the sales team in
China for their efforts and wrote, “A meaningful completion for the quarter and a terrific order to
close out.”
110. The $3 million sale was meaningful to Evoqua. Evoqua reported its results for
fiscal third quarter 2018 in its Form 8-K and Form 10-K filed with the Commission on August 7,

40

2018, and reported that revenues for the business segment that included Neptune increased $8
million, or 9.5%, over the reported revenues in the corresponding quarter in the prior year, of
which this particular sale represented nearly $3 million, or approximately 33%. Despite the
meaningful impact this sale had on the quarter, Evoqua failed to ensure proper internal controls
were in place to evaluate the terms and conditions of this arrangement for proper revenue
recognition. Had Evoqua properly addressed the red flags that it had been presented with
regarding this order, it should have concluded the criteria for revenue recognition had not been
met.
111. Thus, during fiscal year 2018, Neptune and Parekh were using the same bill-and-
hold tactics they had used in fiscal 2017 to pull-forward sales, by enticing customers with price
discounts, extended payment terms, and coordinating a storage solution in exchange for
recording the sale earlier than when the customer needed the underlying product.
112. Over the course of the first nine months of fiscal 2018, Parekh allowed Neptune,
and therefore Evoqua, to improperly recognize at least $4.1 million of revenue related to nine
transactions through additional bill-and-hold deals. This was improper revenue recognition
because the bill-and-hold deals failed several revenue recognition criteria. First, Neptune’s
proposal meant that Neptune, not the customer, was effectively requesting a bill-and-hold
transaction with no substantial business purpose other than for Neptune to accelerate revenue
recognition. Second, Neptune actually paid for the storage costs, typically by paying the third-
party storage provider (meaning that delivery had not occurred) and/or by providing customers
credit in the approximate amount of the storage costs. Third, Neptune was responsible for
coordinating the shipment of the goods to the final customer destination (meaning that delivery
had not occurred prior to that point in time). Fourth, payment was often contingent on delivery to

41

the final customer destination (a collectability concern under basic revenue recognition criteria,
as well as indicia that risk had not passed to the customer since the customer was not obligated to
pay until a subsequent date).
IX. After Parekh Departs,  Evoqua Discovers Products Left In a Warehouse Despite
Having Recognized Revenue in 2017
113. Parekh left his employment at Neptune in August 2018. Soon thereafter, Parekh’s
successor learned of Parekh’s use of the third-party warehouse to improperly recognize revenue.
Among other things, Parekh’s successor discovered 36 Defender filters at the third-party
warehouse for which more than $2 million of revenue had been previously recognized in an
earlier interim or annual period.
114. The discovery of the warehouse was communicated on August 28, 2018 to
Evoqua senior management, including that revenue from 24 of the 36 Defender filters had been
improperly recognized as revenue in fiscal 2017 based on the ex works shipping term, had not
yet shipped to the customer, and were sitting at a warehouse nearly a year later. Evoqua senior
management was informed that the warehouse was being used “as a storage facility for customer
unwilling to accept goods at quarter end” and that “risks that Revenue Recognition criteria were
not met during the past period end still exist.” Additionally, Evoqua senior management was
informed that “there is probably a revenue cut-off issue in our procedures.” Parekh’s successor
also confirmed on August 29, 2018 that Neptune was paying for the third-party warehouse costs,
which he had acknowledged would “be a revenue recognition issue.”
115. Neptune reversed revenue by approximately $1.4 million in fiscal 2018 for two
transactions that were improperly recognized in fiscal 2017, under Parekh’s oversight, for
product that was found in the warehouse. Both of these transactions were part of the fiscal 2017
ex works deals reviewed for the 2017 audit. While one of these transactions had been quantified

42

as part of the $4.8 million misstatement in fiscal 2017 for failing the bill and hold criteria, the
other transaction was not part of the misstatement because it was purported to have shipped to
the customer on or about September 30, 2017. The purported shipment date, however, was not
accurate, because the product had not shipped to the customer but rather to the third party
warehouse where it remained until it was discovered nearly a year later.
116. Despite learning of the existence of the products at the warehouse and the
potential revenue recognition cut-off issues at Neptune in fiscal 2018, including the correlation to
prior bill and hold issues, Evoqua senior management did not make efforts to undertake a
thorough review to, among other things, confirm the magnitude of the issues that were identified
or the potential impact to prior period financial statements. Further, Evoqua did not apprise the
independent auditor of these potential issues, despite a pattern of revenue recognition cut-off
issues at Neptune for the third year in a row.
117. These facts could have caused the independent auditor to rethink its conclusions
reached in fiscal 2017 that Neptune’s reliance on the ex works shipping terms was a simple
misunderstanding of the application of ex works. This is so because even ex works shipping
terms do not contemplate holding product indefinitely on a customer’s behalf. The independent
auditor had communicated in November 2017 to Evoqua senior management that “if it is
determined that [bill and hold] criteria was met and revenue is recognized by the Company and
then the customer subsequently does not take delivery/pick-up by the specified date, [the auditor]
would then consider this to be an error related to the 9/30/17 audit and this could trigger a
reopening of the FY17 audit/potential restatement of FY17 results.” Evoqua, however, did not
notify its independent auditor that it had found product in a warehouse related to transactions that
were previously recognized as revenue.

43

X. Neptune Offered Another Warehouse Deal In The Fourth Quarter of Fiscal 2018

118. During the last quarter of fiscal 2018, Neptune had a  prospective $7 million
international order that was in danger of falling through, which would have significantly
impacted Neptune’s financial results for the fiscal quarter and year end. This would have been
the largest order Neptune ever closed and despite being part of the forecasted results for the year,
the receipt of a definitive order and the closing of the sale had been delayed from several earlier
periods. Evoqua senior management informed the public in an August 2018 conference call with
investors and financial analysts who followed the company (often called an “earnings call”) that
they expected to deliver several larger aquatics projects in the fourth quarter of that fiscal year
(ending September 30, 2018), including projects that were on hold and deferred from the third
quarter. But this project was more than just “on hold” because Evoqua didn’t even have a
purchase order for it. This was misleading, because it implied a sale was imminent, when in fact
it was still speculative.
119. Evoqua was up against a potential earnings miss for the fourth fiscal quarter of
2018. In a September 27, 2018 email, an Evoqua senior executive wrote t o other senior
executives, “[w]e must hit guidance and simply cannot miss the range as we close this year...
Reach out individually to all GMs and let them know to pull whatever they can....” In attempt to
try to salvage the quarter, on September 28, 2018, Neptune entered into an arrangement with a
purportedly new distributor, who would in turn sell the underlying product to an end-customer
for a portion of the $7 million prospective order at some unspecified point in the future. This
contemplated transaction was merely another example of an inappropriate warehouse deal. First,
the new distributor Neptune identified that would purportedly buy the product had no credit
history, did only $1 million in annual sales in an entirely different industry, and required

44

extended payment terms. In addition, the distributor had no end-customer lined up to buy the
product and no capacity to store the product. Despite these risk factors, Neptune recorded $1.2
million of revenue on September 29, 2018 and stored the product at the same third-party
warehouse discussed above. Evoqua’s senior management were made aware of the terms and
conditions of the arrangement, and signed off on extending credit to a new distributor with no
credit history, thus allowing revenue from the transaction to be recognized in the fourth quarter
of 2018.
120. Like certain other transactions Neptune improperly recognized as revenue, the
transaction ultimately fell through and the underlying product was returned from the third-party
warehouse to Neptune in fiscal 2020 upon confirmation that the customer would not be taking
delivery. Neptune paid the third-party warehouse for the outstanding storage costs that were
supposed to be paid by the customer. Had Neptune conducted a proper bill and hold assessment
for this transaction at the time revenue was recognized in 2018, it would not have passed
because, at a minimum, the transaction lacked a substantial business purposes for storage at a
warehouse with no defined shipment date to the customer and collectability was not reasonably
assured.
XI. In October 2018, Evoqua’s Stock Price Dropped 35% When the Company
Announced a Sizeable Miss In Earnings
121. In October 2018, at the conclusion of Evoqua’s first full year as a public
company, Evoqua announced a sizeable miss in earnings for the 2018 fiscal year, including that
its adjusted EBITDA would be between $213 million to $217 million (an increase of 2.6% to
4.5% over the previous year) versus the company’s previously stated expected range between
$235 million to $245 million (an increase of 13% to 18% over 2017). The price for Evoqua’s
stock dropped 35%, from $13.80 per share to $9.02 per share, on October 30, 2018, the day the

45

company announced the news. Evoqua publicly disclosed in its October 30, 2018 Form 8-K filed
with the Commission, that the “challenges were primarily concentrated in the Product segment’s
aquatics business and the Municipal segment. These combined shortfalls are primarily due to
acquisition system integration issues, supply chain disruptions influenced by tariffs and an
extended delay on a large aquatics project.” Thus, Evoqua acknowledged publicly that the A&D
Division was a primary driver of the earnings miss.
122. While the fourth quarter earnings miss was significant, it was also exaggerated
because of the material misstatements that had occurred in the periods leading up to and
including the fourth quarter. For example, in its Form 8-K filed with the Commission on
November 27, 2018, Evoqua reported that revenues in the business segment in which the A&D
Division was included, were down nearly $5 million, or 5%, versus the fourth quarter in the prior
year. However, had Evoqua not improperly recognized revenue, it would have reported increased
revenues of $2 million, or 2.3%, versus the respective prior period, rather than a decrease.
Similarly, for fiscal year 2018, Evoqua reported an increase in revenue over the prior year of
approximately $14 million, or 4%. Had Evoqua not improperly recognized revenue, it would
have reported an increase in revenue over the prior year of approximately $28 million, or 9%--
more than double the increase than what it reported. These are materially different results for the
fourth quarter and fiscal year 2018, and misstated the trends of this business segment.
123. Internal documents sent to Evoqua senior financial management attributed more
than $8 million of the estimated $15 million revenue miss in September 2018 as due to the
inability to get customers to take product early and an additional $1.4 million of the revenue miss
related to “Revenue reversal for inventory sitting at [ ] warehouse.” However, these factors were
not included in the public explanation for the material earnings miss at Evoqua despite senior

46

financial management of Evoqua internally describing the situation at Neptune as a “[c]omplete
train-wreck.”
124. Evoqua acknowledged in its fiscal 2018 Form 10-K, filed with the Commission
on or about December 11, 2018, that it had a material weakness in its internal control over
financial reporting, including a number of control deficiencies related to revenue recognition.
This disclosure was too late, however, because the material weakness existed before fiscal 2018
and, as a result, investors were misled. The disclosure also stated that the material weakness “did
not result in any reported misstatements to the financial statements, and there were no changes to
previously reported financial results.” This was also misleading because material misstatements
existed in the 2018 and prior period financial results.
125. Evoqua’s registration statement, prospectuses, Forms 10-K, Forms 10-Q, and
Forms 8-K filed with the Commission during fiscal year 2017 and through fiscal year  2018
contained materially false and misleading financial statements with improperly reported revenue,
in violation of Evoqua’s accounting policies and GAAP:  Specifically, these filings include t he
S-1/A Registration Statement filed with the Commission on or about October 18, 2017 and
October 20, 2017, the IPO Prospectus filed with the Commission on or about November 3, 2017;
the prospectus filed with the Commission on or about March 16, 2018; Forms 10-K filed with
the Commission on or about December 4, 2017 and December 11, 2018; Forms 10-Q filed with
the Commission on or about February 7, 2018, May 8, 2018 and August 7, 2018; and Forms 8-K
filed with the Commission on or about December 1, 2017, February 6, 2018, May 8, 2018,
August 7, 2018, October 30, 2018, and November 27, 2018. In addition, these filings failed to
disclose Evoqua’s reliance on the practice of reporting revenue from uncompleted sales it treated
as bill-and-hold transactions, and Evoqua’s material deviations from its publicly stated and

47

internal revenue recognition policies and GAAP. Additionally, in its Form 10-K filed with the
Commission on or about December 4, 2017 and in its Forms 10-Q filed with the Commission on
or about February 7, 2018, May 8, 2018 and August 7, 2018, Evoqua failed to disclose a material
weakness in its internal control over financial reporting despite the severe control deficiencies at
Evoqua that had a reasonable possibility of causing a material misstatement and that such control
deficiencies had yet to be remediated and thus continued to pose risk that a material
misstatement would not be prevented or detected on a timely basis in future periods.
126. Each of these filings was materially false and misleading because the disclosure
failures and improper omissions concerned sales and finance practices that are important to a
reasonable investor.
127. In addition, the financial statements in each of these filings were misstated
materially due to a variety of quantitative and qualitative factors, including but not limited to:
• Certain financial statements quantitatively misstated revenue and/or adjusted
EBITDA, a key financial metric of Evoqua, at the consolidated and/or at the
respective segment level for a business segment that played a significant role in
Evoqua’s profitability as evidenced by the fact that when this business segment
underperformed in fiscal 2018 it resulted in an overall material earnings miss;
• Certain financial statements concealed Evoqua’s failure to meet publicly reported
expectations for revenue and adjusted EBITDA as well as analyst consensus
estimates, and/or concealed the magnitude of those failures;
• Certain financial statements were the product of non-compliance with its own
policies, the circumvention of its controls, and fraud as discussed above;

48

• Misstatements in certain financial statements affected Evoqua’s compliance with
regulatory requirements (for example, violation of US GAAP);
• Misstatements in certain financial statements masked a change in earnings or
trends (for example, distorting adjusted EBITDA growth percentages);
• The nature and amount of the misstatements in certain financial statements may
have resulted in a significant negative market reaction; and
• The financial statements did not disclose the recurring practice of pulling forward
sales and the potentially adverse impact it could have (and did have) on
subsequent period filings.

FIRST CLAIM
Violation of Section 10(b) of the Exchange Act and Rules 10b-5(a) and   (c) Thereunder
(Parekh)

128. The Commission repeats and incorporates by reference the allegations in
paragraphs 1 through 127 above as if set forth fully herein.
129. Parekh intentionally, knowingly, or recklessly engaged in a fraudulent scheme
through the series of acts detailed above. Parekh directly or indirectly (a) employed devices,
schemes, or artifices to defraud; and (c) engaged in acts, practices, or courses of business which
operated or would operate as a fraud or deceit upon any persons, including purchasers or sellers
of Evoqua’s securities.
130. As set forth above, Parekh employed devices, schemes, or artifices to defraud by
fraudulently recognizing revenues from uncompleted sales, knowing that the revenue would be
included in the company’s public statements and filings with the Commission. He knew or was
reckless in not knowing that recognizing revenues from these transactions was improper under

49

applicable accounting rules and/or would mislead investors about the financial condition of the
company. Parekh also concealed details of these uncompleted sales from Evoqua personnel,
including, but not limited to, (1) making a widespread change at Neptune to the ex works
shipping term to recognize revenue prior to shipment in fiscal 2017 without vetting the change
with Evoqua’s corporate accounting group, (2) using the ex works term in form but not substance
to rationalize recognition of revenue prior to shipment, (3) storing ex works orders for extended
periods of time, including up to a year in a warehouse, after revenue had been recognized, and
(4) introducing the warehouse deal in fiscal 2018 and continuing to recognize revenue and store
customer orders in a warehouse after specifically being told revenue recognition prior to
shipment must be assessed under the bill and hold criteria.
131. Parekh directly or indirectly made use of the means of instrumentalities or
interstate commerce, or the mails, or of the facilities of a national securities exchange, in
connection with these transactions, acts, practices, and courses of business.
132. As a result, Parekh violated and, unless enjoined, will continue to violate Section
10(b) of the Exchange Act [15 U.S.C. § 78j(b)] and Rules 10b-5(a) and (c) thereunder [17
C.F.R. § 240.10b-5(a) and (c)].
SECOND CLAIM
Violation of Section 17(a)(1) of the Securities Act
(Parekh)

133. The Commission repeats and incorporates by reference the allegations in
paragraphs 1 through 127 above as if set forth fully herein.
134. As detailed above, Parekh directly or indirectly, in the offer or sale of securities,
using the means and instruments of transportation or communication in interstate commerce or
by use of the mail, with scienter, employed devices, schemes, or artifices to defraud.

50

135. As set forth above, Parekh employed devices, schemes, or artifices to defraud by
intentionally, knowingly or recklessly recognizing revenues from uncompleted sales, knowing
that the revenue would be included in the company’s public statements and filings with the
Commission. He knew or was reckless in not knowing that recognizing revenues from these
transactions was improper under applicable accounting rules and/or would mislead investors
about the financial condition of the company. Parekh also concealed details of these uncompleted
sales from Evoqua personnel, including, but not limited to, (1) making a widespread change at
Neptune to the ex works shipping term to recognize revenue prior to shipment in fiscal 2017
without vetting the change with Evoqua’s corporate accounting group, (2) using the ex works
term in form but not substance to rationalize recognition of revenue prior to shipment, (3) storing
ex works orders for extended periods of time, including up to a year in a warehouse, after
revenue had been recognized, and (4) introducing the warehouse deal in fiscal 2018 and
continuing to recognize revenue and store customer orders in a warehouse after specifically
being told revenue recognition prior to shipment must be assessed under the bill and hold
criteria.
136. As a result, Parekh violated and, unless enjoined, will continue to violate Section
17(a)(1) of the Securities Act [15 U.S.C. § 77q(a)(1)].
THIRD CLAIM
Violation of Section 17(a)(2) of the Securities Act
(Evoqua and Parekh)

137. The Commission repeats and incorporates by reference the allegations in
paragraphs 1 through 127 above as if set forth fully herein.
138. As detailed above, Evoqua and Parekh, acting negligently, directly or indirectly,
in the offer or sale of securities, using the means and instruments of transportation or

51

communication in interstate commerce or by use of the mail, obtained money or property by
means of untrue statements of a material fact or by omitting to state a material fact necessary to
make the statements made, in light of the circumstances under which they were made, not
misleading.
139. As a result, Evoqua and Parekh violated and, unless enjoined, will continue to
violate Section 17(a)(2) of the Securities Act [15 U.S.C. § 77q(a)(2)].
FOURTH CLAIM
Aiding and Abetting Violations of Section 17(a)(2) of the Securities Act
(Parekh)

140. The Commission repeats and incorporates by reference the allegations in
paragraphs 1 through 127 above as if set forth fully herein.
141. As set forth above, Parekh knowingly or recklessly provided substantial
assistance to Evoqua for, directly or indirectly, in the offer or sale of securities, using the means
and instruments of transportation or communication in interstate commerce or by use of the mail,
obtaining money or property by means of untrue statements of a material fact or by omitting to
state a material fact necessary to make the statements made, in light of the circumstances under
which they were made, not misleading.
142. As a result, pursuant to Section 15(b) of the Securities Act [15 U.S.C. § 77(b)],
Parekh aided and abetted, and unless enjoined will continue to aid and abet violations of Section
17(a)(2) of the Securities Act.
FIFTH CLAIM
Violation of Section 17(a)(3) of the Securities Act
(Evoqua and Parekh)

52

143. The Commission repeats and incorporates by reference the allegations in
paragraphs 1 through 127 above as if set forth fully herein.
144. As detailed above, Evoqua and Parekh, acting negligently, directly or indirectly,
in the offer or sale of securities, using the means and instruments of transportation or
communication in interstate commerce or by use of the mail, engaged in transactions, practices,
or course of business which operated or would operate as a fraud or deceit upon the purchaser.
145. As a result, Evoqua and Parekh violated and, unless enjoined, will continue to
violate Section 17(a)(3) of the Securities Act [15 U.S.C. § 77q(a)(3)].
SIXTH CLAIM
Violation of Section 13(a) of the Exchange Act and
Rules 12b-20, 13a-1, 13a-11, and 13a-13 thereunder
(Evoqua)

146. The Commission repeats and incorporates by reference the allegations in
paragraphs 1 through 127 above as if set forth fully herein.
147. Section 13(a) of the Exchange Act and Rules 13a-1, 13a-11, and 13a-13
thereunder require an issuer such as Evoqua to file with the Commission accurate annual reports
on Forms 10-K, 8-K, and 10-Q respectively. Rule 12b-20 requires that these reports contain such
further material information as is necessary to make the required statements in the reports not
misleading.
148. As set forth above, the registration statements, prospectuses, Forms 10-K, Forms
10-Q, and Forms 8-K filed by Evoqua during 2017 and 2018 contained materially false and
misleading financial statements with improperly reported revenue, in violation of Evoqua’s
accounting policies and GAAP:  Specifically, these filings include the S-1/A Registration
Statement filed with the Commission on or about October 20, 2017; the IPO Prospectus filed

53

with the Commission on or about November 3, 2017; the prospectus filed with the Commission
on or about March 16, 2018; Forms 10-K filed with the Commission on or about December 4,
2017 and December 11, 2018; Forms 10-Q filed with the Commission on or about February 7,
2018, May 8, 2018 and August 7, 2018; and Forms 8-K filed with the Commission on or about
December 1, 2017, February 6, 2018, May 8, 2018, August 7, 2018, October 30, 2018, and
November 27, 2018. In addition, these filings failed to disclose Evoqua’s reliance on the practice
of reporting revenue from uncompleted sales it treated as bill-and-hold transactions and
Evoqua’s material deviations from its publicly stated and internal revenue recognition policies
and GAAP. Additionally, in the Form 10-K filed with the Commission on or about December 4,
2017 and Forms 10-Q filed with the Commission on or about February 7, 2018, May 8, 2018 and
August 7, 2018, Evoqua failed to disclose a material weakness in its internal control over
financial reporting.
149. As a result, Evoqua violated and, unless enjoined, will continue to violate Section
13(a) of the Exchange Act and Rules 12b-20, 13a-1, 13a-11, and 13a-13 thereunder [15 U.S.C.
§§78m(a); 17 C.F.R. §§240.12b-20, 240.13a-1, 240.13a-11, and 240.13a-13].
SEVENTH CLAIM
Aiding and Abetting Violations of
Section 13(a) of the Exchange Act and Rules 12b-20, 13a-1, 13a-11, and 13a-13 thereunder
(Parekh)

150. The Commission repeats and incorporates by reference the allegations in
paragraphs 1 through 127 above as if set forth fully herein.
151. As set forth above, Parekh knowingly or recklessly provided substantial
assistance to Evoqua in its failures to file with the Commission accurate and complete
information, reports, and documents, and such further material information necessary to make

54

the required statements, in light of the circumstances under which they were made, not
misleading.
152. As set forth above, the registration statements, prospectuses, Forms 10-K, Forms
10-Q, and Forms 8-K filed by Evoqua during 2017 and 2018 (as listed in paragraph 148 above)
each contained false and misleading financial statements which improperly reported revenue that
was attributed to purported bill-and-hold transactions, in violation of Evoqua’s accounting
policies and GAAP.
153. Parekh knowingly or recklessly provided substantial assistance to Evoqua in its
failures to file with the Commission accurate and complete information, reports and documents
for each Form 10-K, Form 10-Q, Form 8-K, and other documents listed in Paragraph 148 above,
which Evoqua filed with the Commission.
154. As a result, pursuant to Section 20(e) of the Exchange Act [15 U.S.C. § 78(t)(e)],
Parekh aided and abetted, and unless enjoined will continue to aid and abet violations of Section
13(a) of the Exchange Act [15 U.S.C. § 78m(a)] and Rules 12b-20, 13a-1, 13a-11, and 13a-13
thereunder [17 C.F.R. §§ 240.12b-20, 240.13a-1, 240.13a-11, and 240.13a-13].
EIGHTH CLAIM
Violation of Section 13(b)(2)(A) of the Exchange Act
(Evoqua)

155. The Commission repeats and incorporates by reference the allegations in
paragraphs 1 through 127 above as if set forth fully herein.
156. Section 13(b)(2)(A) of the Exchange Act requires an issuer such as Evoqua to
make and keep books, records, and accounts which, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of its assets.

55

157. By failing to make or keep books, records and accounts that in reasonable detail
accurately and fairly reflected its transactions and disposition of its assets, Evoqua violated and,
unless enjoined, will continue to violate Section 13(b)(2)(A) of the Exchange Act [15 U.S.C. §
78m(b)(2)(A)].
NINTH CLAIM
Aiding and Abetting Violations of
Section 13(b)(2)(A) of the Exchange Act
(Parekh)

158. The Commission repeats and incorporates by reference the allegations in
paragraphs 1 through 127 above as if set forth fully herein.
159. As set forth above, through his conduct Parekh knowingly or recklessly provided
substantial assistance to Evoqua in its failure to make and keep books, records, and accounts,
which, in reasonable detail, accurately and fairly reflected the transactions and dispositions of its
assets.
160. As a result, pursuant to Section 20(e) of the Exchange Act [15 U.S.C. § 78t(e)],
Parekh aided and abetted, and unless enjoined, will continue to aid and abet, violations of
Section 13(b)(2)(A) of the Exchange Act [15 U.S.C. § 78m(b)(2)(A)].
TENTH CLAIM
Violation of Section 13(b)(2)(B) of the Exchange Act
(Evoqua)

161. The Commission repeats and incorporates by reference the allegations in
paragraphs 1 through 127 above as if set forth fully herein.
162. Section 13(b)(2)(B) of the Exchange Act requires an issuer such as Evoqua to
devise and maintain a system of internal accounting controls sufficient to provide reasonable

56

assurances that its financial statements are prepared in conformity with GAAP or any other
criteria applicable to those statements.
163. As set forth above, the financial statements in the Forms 10-K, 10-Q, 8-K, and
other documents listed above in paragraph 125 recognized revenue in ways that did not comply
with GAAP and that had a material impact on the company’s financial results.
164. As a result, Evoqua violated and, unless enjoined, will continue to violate Section
13(b)(2)(B) of the Exchange Act [15 U.S.C. § 78m(b)(2)(B)].
ELEVENTH CLAIM
Aiding and Abetting Violations of
Section 13(b)(2)(B) of the Exchange Act
(Parekh)

165. The Commission repeats and incorporates by reference the allegations in
paragraphs 1 through 127 above as if set forth fully herein.
166. As set forth above, through the conduct described above and by failing to ensure
that sufficient accounting controls existed, Parekh knowingly or recklessly provided substantial
assistance to Evoqua in its failure to devise and maintain internal accounting controls sufficient
to provide reasonable assurances that transactions were recorded as necessary to permit the
preparation of financial statements in conformity with GAAP and to maintain accountability for
assets.
167. As a result, pursuant to Section 20(e) of the Exchange Act [15 U.S.C. § 78t(e)],
Parekh aided and abetted, and unless enjoined, will continue to aid and abet, violations of
Section 13(b)(2)(B) of the Exchange Act [15 U.S.C. § 78m(b)(2)(B).

57

TWELFTH CLAIM
Violation of Section 13(b)(5) of the Exchange Act
(Parekh)

168. The Commission repeats and incorporates by reference the allegations in
paragraphs 1 through 127 above as if set forth fully herein.
169. Section 13(b)(5) of the Exchange Act prohibits any person from knowingly
circumventing or knowingly failing to implement a system of internal accounting controls or
from knowingly falsifying any book, record, or account.
170. As set forth above, Parekh knowingly circumvented and/or knowingly failed to
implement a system of internal accounting controls at Neptune, and therefore at Evoqua through
Neptune, and directly or indirectly, knowingly falsified, or caused, through the conduct described
above, to be falsified, Evoqua’s books, records, and/or accounts.
171. As a result, Parekh violated and, unless enjoined, will continue to violate Section
13(b)(5) of the Exchange Act [15 U.S.C. §§78m(b)(5)].
THIRTEENTH CLAIM
Violation of Exchange Act Rule 13b2-1
(Parekh)

172. The Commission repeats and incorporates by reference the allegations in
paragraphs 1 through 127 above as if set forth fully herein.
173. As set forth above, Parekh, directly or indirectly, falsified or caused to be falsified
Evoqua’s books, records, and/or accounts subject to Section 13(b)(2)(A) of the Exchange Act.
174. As a result, Parekh violated, and unless enjoined, will continue to violate Rule
13b2-1 promulgated under the Exchange Act [17 C.F.R. § 240.13b2-1].

58

PRAYER FOR RELIEF
WHEREFORE, the Commission requests that this Court:
A. Enter permanent injunctions, including an injunction restraining Defendants and
each of their agents, servants, employees and attorneys and those persons in active concert or
participation with them who receive actual notice of the injunction by personal service or
otherwise, including facsimile transmission or overnight delivery service, from directly or
indirectly engaging in the conduct described above, or in conduct of similar purport and effect,
as follows:
a. For Evoqua:  conduct in violation of Section 17(a)(2) and (3) of the Securities Act
[15 U.S.C. § 77q(a)(2) and (3)], and Sections 13(a), 13(b)(2)(A), and 13(b)(2)(B)
of the Exchange Act [15 U.S.C. §§  78m(a), 78m(b)(2)(A), 78m(b)(2)(B)] and
Rules 12b-20, 13a-1, 13a-11, and 13a-13 thereunder [17 C.F.R. §§  240.10b-5(a)
and (c), 240.12b-20, 240.13a-1, 240.13a-11, 240.13a-13];
b. For Parekh: conduct in violation of Sections 17(a) of the Securities Act [15 U.S.C.
§ 77q(a)], and Sections 10(b) and 13(b)(5) of the Exchange Act [15 U.S.C. §§
78j(b), 78m(b)(5)] and Rules 10b-5(a) and (c) and 13b2-1 promulgated under the
Exchange Act [17 C.F.R. §§ 240.10b-5(a) and (c), 240.13b2-1], and aiding and
abetting Evoqua’s violations of Section 17(a)(2) of the Securities Act [15 U.S.C. §
77q(a)(2)] and Sections 13(a), 13(b)(2)(A), and 13(b)(2)(B) of the Exchange Act
[15 U.S.C. §§ 78m(a), 78m(b)(2)(A), 78m(b)(2)(B)] and Rules 12b-20, 13a-1, 13a-
11, and 13a-13 thereunder [17 C.F.R. §§ 240.12b-20, 240.13a-1, 240.13a-11,
240.13a-13];
B. Prohibit pursuant to Section 20(e) of the Securities Act [15 U.S.C. § 77t(e)] and
Section 21(d)(2) of the Exchange Act [15 U.S.C. §78u(d)(2)] Defendant Parekh from acting as

59

an officer or director of any issuer that has a class of securities registered under Section 12 of the
Exchange Act [15 U.S.C. § 78l] or that is required to file reports under Section 15(d) of the
Exchange Act [15 U.S.C. § 78o].
C. Require Defendants to pay an appropriate civil monetary penalty pursuant to
Section 20(d) of the Securities Act [15 U.S.C. § 77t(d)] and Section 21(d)(3) of the Exchange
Act [15 U.S.C. § 78u(d)(3)].
D. Require Parekh to pay disgorgement plus prejudgment interest on his ill-gotten
gains pursuant to Sections 21(d)(5) and (7) of the Exchange Act [15 U.S.C. § 78u(d)(5) and (7)].
E. Retain jurisdiction over this action to implement and carry out the terms of all
orders and decrees that may be entered; and,
F. Award other and further relief as the Court deems just and proper.

    Respectfully submitted,
SECURITIES AND EXCHANGE COMMISSION
By its attorneys,

/s/ David H. London
David H. London (Mass. Bar No. 638289)
  Trial Counsel
Jonathan R. Allen (Mass. Bar No. 680729)
  Senior Enforcement Counsel
Peter Bryan Moores (Mass. Bar No. 658033)
  Senior Enforcement Counsel

Attorneys for Plaintiff
SECURITIES AND EXCHANGE COMMISSION
33 Arch Street, 24th Floor
Boston, MA  02110
(617) 573-8997 (London direct)
(617) 573-4590 (Fax)
[email protected] (London email)

60

Local Counsel:

Bethany N. Wong
Assistant United States Attorney
Chief, Civil Division
One Financial Plaza, 17
th
 Floor
Providence, Rhode Island 02903
(401) 709-5000
(401) 709-5001 (Fax)
Email: [email protected]

DATED: March 13, 2023

UNITED STATES DISTRICT COURT 
DISTRICT OF RHODE ISLAND 

 
 
SECURITIES AND EXCHANGE COMMISSION,  
 
   Plaintiff,  
 
 v. 
 
EVOQUA WATER TECHNOLOGIES CORP. 
and IMRAN PAREKH, 
 
   Defendants. 
    

  
 

Case No. 
 
 
JURY TRIAL DEMANDED 

COMPLAINT 

Plaintiff United States Securities and Exchange Commission (“the Commission”) alleges 

the following against Defendants Evoqua Water Technologies Corp. (“Evoqua”) and its former 

division-level finance director Imran Parekh, and hereby demands a jury trial: 

SUMMARY OF THE ACTION 

1. Beginning in 2016 and continuing at least until December 2018, Evoqua 

improperly counted (or “recognized”) revenue in violation of Generally Accepted Accounting 

Principles (“GAAP”), which is a common set of accounting principles, standards, and procedures 

that public companies must follow when they compile their financial statements, and is the 

accounting standard adopted by the Commission that must be followed by public companies in 

the United States. Evoqua’s improper revenue recognition caused the company to materially 

misstate the financial statements it incorporated into its November 2017 initial public offering 

(“IPO”) of stock and reported in its subsequent annual and quarterly financial statements filed 

with the Commission. Parekh was primarily responsible for the fraudulently inflated revenues at 

Evoqua. 

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2. Evoqua is a Pennsylvania company that earns revenue by selling water 

technology and treatment products. In April 2016, Evoqua acquired Neptune Benson 

(“Neptune”), which was headquartered in Rhode Island. Neptune manufactured and sold large 

water filters used in public and commercial pools and water parks. Evoqua incorporated Neptune 

by making it a division-level company in Evoqua’s products segment. Parekh worked at Neptune 

before Evoqua acquired Neptune, and became the finance director for Neptune after the sale to 

Evoqua. As finance director, Parekh was responsible for Neptune’s financial statements and 

recognition of revenue. Parekh was also given supervisory responsibilities for other division-

level companies within Evoqua’s products segment.   

3. From the beginning of its integration into Evoqua, Neptune regularly reported 

revenue for consolidation into Evoqua’s financial statements that did not comply with GAAP. 

Under Parekh’s supervision, Neptune improperly recognized revenue from sales transactions that 

lacked documentation and for which Neptune failed to ship the product to the customer before 

the end of the reporting period. In 2016 and early 2017, Evoqua’s departments of finance, 

compliance, and internal audit became aware of problems with Neptune’s accounting controls, 

including lack of documentation supporting revenue recognition and improper recognition of 

revenue on product sales before the product shipped to the customer.  

4. During 2017, in response to pressure to generate additional revenue in advance of 

Evoqua’s IPO, Parekh intentionally or recklessly took steps to further increase Evoqua’s already 

inflated revenue. Working with others at Neptune and Wallace & Tiernan, another division-level 

company at Evoqua, Parekh inflated revenue in violation of GAAP in two primary ways. First, at 

the end of Evoqua’s fiscal quarters, he approved the recognition of revenue from sales 

transactions that did not support the recognition of revenue under GAAP because they contained, 

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3 
 

among others things, sales terms with contingency clauses, return rights, or future performance 

obligations for Evoqua, or because the transactions lacked assurance Evoqua could collect from 

the purchaser. Second, Parekh directed and allowed Neptune and Wallace & Tiernan (and thus 

Evoqua) to fraudulently recognize revenue in periods before the company shipped products to 

customers to complete the transaction and in violation of accounting principles applicable to 

such transactions. For example, Parekh directed the recognition of revenue for product stored in 

warehouses (in other words, not shipped to the purchasing customer) at the end of quarters 

without any valid accounting basis. In effect, Evoqua improperly recognized revenue on a “bill-

and-hold” basis in violation of GAAP. A bill-and-hold transaction is generally one where the 

seller “bills” the buyer for the purchase but the seller then “holds” the product and does not 

deliver it to the customer until some later date. Under GAAP, bill-and-hold transactions must 

meet certain criteria before the seller can recognize revenue, and Evoqua failed to meet those 

criteria for numerous transactions. 

5. The fraud was pervasive and infected most of Neptune’s largest transactions. 

Neptune improperly recognized revenue for nine of its 11 largest transactions between January 

2016 and September 2018 totaling nearly $13 million. In total, Neptune improperly recognized 

revenue in connection with at least 120 transactions representing nearly $36 million in revenue, 

which comprised approximately 20% of Neptune’s total revenue during this time period. 

6. As a result of the fraud, Evoqua reported nearly $12 million of additional 

expected revenue for its fiscal year 2017 in its securities registration statement and its IPO 

Prospectus (a disclosure document providing details about the IPO) filed with the Commission in 

October and November 2017. The registration statement and the IPO Prospectus are key 

documents containing financial and other important information that a company uses to market 

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4 
 

its shares to the public for the first time. By reading Evoqua’s registration statement and IPO 

Prospectus, potential investors could evaluate the newly public company’s prospects. The 

revenue Evoqua improperly reported in violation of GAAP made it appear that the company was 

selling more in aquatic filtration products, and earning more revenue and income, than it actually 

was at the time of the IPO. 

7. In November 2017, immediately following Evoqua’s IPO, Evoqua’s independent 

auditor challenged Neptune’s use of bill-and-hold sales and ultimately concluded that Neptune, 

and thus Evoqua, improperly accounted for many sales and recognized revenue before Neptune 

had shipped the products to its customers without proper application of relevant accounting 

principles. When challenged by its independent auditor, Parekh and Evoqua failed to identify all 

of the improper bill-and-hold transactions and erroneously recognized revenue from sales they 

understood did not comply with GAAP.      

8. During November 2017, Evoqua’s management made an internal decision that the 

company would view the amount of improperly recognized revenue that was challenged by the 

auditor as not being material. One month later, Evoqua filed with the Commission its first annual 

report (known as Form 10-K) as a public company, and published the same inflated revenues for 

its fiscal year 2017. If not for the inclusion of the improper revenue, Evoqua would have missed 

the preliminary financial results it had publicly disclosed in its registration statement and IPO 

Prospectus. As a result, the Defendants misled investors and potential investors, giving the false 

appearance that the company had met or exceeded the financial performance and revenue 

forecasts it had publicly disclosed in its IPO Prospectus for the respective period. 

9. The improper efforts to accelerate revenue recognition to meet financial targets in 

fiscal year 2017 had a snowball effect. The millions of dollars of sales that were pulled into fiscal 

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5 
 

2017 from bill-and-hold transactions where the revenue should have been recognized in later 

fiscal periods had to be replaced the following year in order to stay on the growth trajectory 

established for the newly public company. In an effort to achieve Evoqua’s financial targets, 

Neptune and Parekh again resorted to fraudulent sales practices and the untimely recognition of 

revenue.  

10. Previously, Neptune stored bill-and-hold product at its own warehouses and third-

party warehouses paid for by Neptune. But following the fiscal 2017 audit when Evoqua’s 

independent auditor challenged Neptune’s practice of recognizing revenue for sales it did not 

ship before quarter end, Neptune and Parekh modified the scheme and directed Neptune’s 

operations personnel to ship product to third-party warehouses to store product purportedly at the 

customer’s expense when customers were unwilling to accept shipment before the end of 

Evoqua’s fiscal quarters. Neptune then recognized revenue for the product that was sitting in the 

third-party warehouse (and thus not yet shipped to customers)—storage that was actually paid 

for by Neptune, not the customer—and without applying the accounting principles applicable to 

such transactions. As a result, Neptune, and ultimately Evoqua, improperly recognized revenue 

in fiscal quarters earlier than permitted under GAAP during its 2018 fiscal year.     

11. Evoqua’s violations of the securities laws were the result of intentional or reckless 

conduct by Parekh, and negligent conduct at Evoqua’s corporate level in managing the financial 

reporting and accounting controls processes. The misconduct continued through Evoqua’s first 

year as a public company, resulting in inaccurate books and records and material misstatements 

of Evoqua’s financial condition reported in its registration statement and IPO Prospectus, as well 

as its Forms 10-K, 10-Q, and 8-K filed with the Commission between the end of 2017 and until 

December 2018. 

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6 
 

12. By failing to disclose to investors (or in filings with the Commission) that Evoqua 

reported uncompleted sales as revenue by misapplying bill-and-hold criteria, and by failing to 

adhere to GAAP and its own accounting policies, Evoqua misled its investors and potential 

investors about the true financial picture of the company. 

13. Through its conduct, Evoqua violated Sections 17(a)(2) and (3) of the Securities 

Act of 1933 (“Securities Act”) [15 U.S.C. §§ 77q(a)(2) and (3)], and Sections 13(a), 13(b)(2)(A), 

and 13(b)(2)(B) of the Securities Exchange Act of 1934 (“Exchange Act”) [15 U.S.C. §§  

78m(a), 78m(b)(2)(A), 78m(b)(2)(B)] and Rules 12b-20, 13a-1, 13a-11, and 13a-13 thereunder 

[17 C.F.R. §§ 240.12b-20, 240.13a-1, 240.13a-11, 240.13a-13].  

14. Through his conduct, Parekh violated Section 17(a) of the Securities Act [15 

U.S.C. §§ 77q(a)] and Sections 10(b) and 13(b)(5) of the Exchange Act [15 U.S.C. §§ 78j(b), 

78m(b)(5)] and Rules 10b-5(a) and (c), and 13b2-1 promulgated under the Exchange Act [17 

C.F.R. §§ 240.10b-5(a) and (c), and 240.13b2-1]. He aided and abetted Evoqua’s violations of 

Section 17(a)(2) of the Securities Act [15 U.S.C. §§ 77q(a)(2)] and Sections 13(a), 13(b)(2)(A), 

and 13(b)(2)(B) of the Exchange Act [15 U.S.C. §§ 78m(a), 78m(b)(2)(A), 78m(b)(2)(B)] and 

Rules 12b-20, and 13a-1, 13a-11, and 13a-13 thereunder [17 C.F.R. §§ 240.12b-20, 240.13a-1, 

240.13a-11, 240.13a-13].  

15. The Commission seeks: 

a. entry of permanent injunctions prohibiting both Defendants from further 
violations of the provisions of the federal securities laws alleged violated, 
under Section 20(b) of the Securities Act [15 U.S.C. § 77t(b)] and 
Section 21(d)(1) of the Exchange Act [15 U.S.C. § 78u(d)(1)];  

b. imposition of civil monetary penalties against both Defendants under 
Section 20(d) of the Securities Act [15 U.S.C. § 77t(d)] and Section 
21(d)(3) of the Exchange Act [15 U.S.C. § 78u(d)(3)];  

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7 
 

c. disgorgement of Parekh’s ill-gotten gains plus pre-judgment interest under 
Sections 21(d)(5) and (7) of the Exchange Act [15 U.S.C. §§ 78u(d)(5) and 
(7)]; 

d. an officer and director bar against Parekh imposed under Section 20(e) of 
the Securities Act [15 U.S.C. § 77t(e)] and Section 21(d)(2) of the 
Exchange Act [15 U.S.C. § 78u(d)(2)], and 

e. such other and further relief the Court may find appropriate under Section 
21(d)(5) of the Exchange Act [15 U.S.C. § 78u(d)(5)]. 

JURISDICTION AND VENUE 

16. This Court has jurisdiction over this action pursuant to Sections 20(b), 20(d), and 

22(a) of the Securities Act [15 U.S.C. §§ 77t(b), 77t(d), 77v(a)] and Sections 21(d), 21(e), and 27 

of the Exchange Act [15 U.S.C. §§ 78u(d), 78u(e), and 78aa]. Defendants have directly or 

indirectly made use of the means or instruments of transportation or communication in, and the 

means or instrumentalities of, interstate commerce, or the mails, or of the facilities of a national 

securities exchange, in connection with the transactions, acts, practices, and courses of business 

alleged in this Complaint. 

17. Venue is proper in the District of Rhode Island pursuant to Section 22(a) of the 

Securities Act [15 U.S.C. § 77v(a)] and Section 27 of the Exchange Act [15 U.S.C. § 78aa] 

because certain of the acts, transactions, practices, and courses of business constituting the 

alleged violations occurred in this District.  

DEFENDANTS 

18. Evoqua Water Technologies Corp. is a Delaware corporation headquartered in 

Pittsburgh, Pennsylvania. Evoqua describes itself as a provider of water and wastewater 

treatment solutions, offering a portfolio of products, services, and expertise to support industrial, 

municipal, and recreational customers. Evoqua became a publicly-traded company on November 

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8 
 

2, 2017. Its common stock is registered with the Commission pursuant to Section 12(b) of the 

Exchange Act and trades on the New York Stock Exchange under the ticker symbol “AQUA.” 

19. Imran Parekh, age 41, is a resident of Hopkinton, Massachusetts. From 2016 

through July 2018, Parekh was the Finance Director for the Americas at Evoqua’s Aquatics & 

Disinfection (“A&D”) Division. As Finance Director, Parekh had responsibility for the financial 

results of Neptune and other companies in the A&D Division. This included meeting internal 

sales targets and reporting of actual results for the division. He was responsible for the 

recognition of revenue for Neptune at Evoqua. Parekh ceased working at Evoqua in August 

2018.  

STATEMENT OF FACTS 

I. Evoqua’s Business 

20. During the time period relevant to this case, Evoqua was organizationally 

structured into three business segments for the purpose of making operational decisions and 

assessing financial performance: (i) Industrial, (ii) Municipal, and (iii) Products. 

21. Evoqua has several division-level companies located throughout the United 

States, including Neptune based in Coventry, Rhode Island, which Evoqua acquired in April 

2016. Neptune is a manufacturer of water filtration and disinfection products for commercial, 

industrial, and municipal water markets, such as large city drinking water, commercial 

swimming pools, and theme parks. During the time period relevant to this case, Neptune took 

customized orders that often exceeded $100,000 and sometimes exceeded $1 million. 

22. Neptune’s main product at the time was the Defender filter, which is a 

regenerative media filtration product used in the commercial aquatics market. Neptune sells 

Defender filters to customers that build large water parks. Orders related to these large water 

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9 
 

parks typically required long lead times from when the order was placed until the time the 

product was needed on-site. Because these lead times could exceed one year, Neptune often 

carried project sales on Neptune’s backlog (expected future revenue) until the order was needed 

by the customer. 

23. Evoqua acquired Neptune in April 2016 for $283.7 million. Neptune was the 

largest acquisition Evoqua has ever made. Evoqua stated at the time that it acquired Neptune to 

complement Evoqua’s existing businesses and, consistent with Evoqua’s growth plan, to double 

its business by the end of 2021. 

24. After Evoqua acquired Neptune, revenue purportedly earned by Neptune was 

reported up to Evoqua and included in Evoqua’s financial statements. Thus, the facts presented 

below concerning the recognition and reporting of revenue by Neptune are, in fact, also revenue 

recognized and reported by Evoqua. 

II. Background on Revenue Recognition 

25. Under US GAAP at the time period relevant to this case, revenue could not be 

recognized until it was earned (generally speaking, when goods or services are transferred or 

rendered) and realizable (generally speaking, when cash or a claim to cash is received in 

exchange for goods or services).  

26. Relatedly, there are four fundamental criteria that generally must be met to 

recognize revenue: 

i. persuasive evidence of an arrangement exists; 

ii. delivery has occurred or services have been rendered; 

iii. the seller’s price to the buyer is fixed or determinable; and 

iv. collectability is reasonably assured. 

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The occurrence of delivery is one of the four criteria. But if any of these criteria are not met, 

revenue should not be recognized. 

27. With respect to delivery, there are various considerations that could impact 

whether delivery has occurred, one of which is bill-and-hold arrangements. A bill-and-hold 

arrangement is a deal where a sale is recognized prior to delivery to the customer. Under GAAP, 

in a bill-and-hold arrangement, revenue can only be recognized prior to delivery to the customer 

if all of the following criteria are met: 

i. The risks of ownership must pass to the buyer; 

ii. The customer must make a fixed commitment to purchase the goods;  

iii. The buyer, not the seller, must request that the transaction be on a bill and 

hold basis and the buyer must have a substantial business purpose for 

ordering the goods on a bill and hold basis; 

iv. There must be a fixed schedule for delivery of the goods and the date must be 

reasonable and consistent with the buyer’s business purpose; 

v. The seller must not have retained any specific performance obligations such 

that the earning process is not complete; 

vi. The ordered goods are segregated from the seller’s inventory and are not  

subject to being used to fill other orders; and 

vii. The product must be complete and ready for shipment. 

28. Taking all of the above into consideration, revenue recognition prior to delivery is 

an exception, not the norm. 

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29. According to Evoqua’s internal accounting policies, Evoqua sought to maintain 

its financial statements in accordance with GAAP. The policies set forth that “[s]ales of goods 

and services are recognized when persuasive evidence of an arrangement exists, the price is fixed 

or determinable, collectability is reasonably assured and delivery has occurred or services have 

been rendered.” The policies also stated, “for sales of aftermarket parts or products with a low 

level of customization and engineering time, the Company recognizes revenue at the time title 

and risks and rewards of ownership pass, which is generally when products are shipped or 

delivered to the customer….” Evoqua published this revenue recognition policy in its IPO 

Prospectus filed November 3, 2017 (more than a year and a half after acquiring Neptune). It 

again published this policy in its first Form 10-K filed with the Commission one month later 

(December 4, 2017) and again in its Form 10-K for fiscal year 2018. 

30. Evoqua, however, did not adhere to its own policy by recognizing revenue in its 

products segment before title and the risks and rewards of ownership had passed to its customers. 

Thus, its disclosures of its revenue recognition policies in its publicly filed financial statements 

were materially misleading.  

III. Beginning in Late 2016 and Continuing Through the November 2017 IPO, Evoqua 
Improperly Recognized Millions of Dollars in Revenue 

31. A company’s fiscal year (sometimes referred to as a financial year) is a 12-month 

accounting period that a company uses for financial reporting purposes. A fiscal year can be 

different from a calendar year. Evoqua’s fiscal year starts on October 1 and ends the following 

September 30 (so, for example, its fiscal year 2017 began October 1, 2016 and concluded on 

September 30, 2017). 

32. Neptune’s first fiscal year as a part of Evoqua occurred in 2016. In advance of the 

fiscal year-end in September 2016, Neptune raced to recognize revenue, often in violation of 

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GAAP, and it failed to implement basic internal accounting controls relating to revenue 

recognition. Senior managers in Evoqua’s financial department learned of financial reporting 

problems at Neptune, but Evoqua failed to take steps to remediate the deficiencies, thus allowing 

revenue recognition problems to exacerbate throughout Evoqua’s fiscal year 2017. 

A. Neptune Improperly Recognized Revenue in Fiscal Year 2016 
 

33.  During the fourth quarter of fiscal 2016 (ending September 30, 2016), Neptune 

improperly recognized nearly $3.5 million in revenue from multiple sales under the close 

supervision of Parekh. The revenue was improperly recognized for several reasons, including a 

lack of documentation that the sales were realized or realizable and irreconcilable inconsistencies 

about when Neptune shipped product to customers. For example, numerous transactions lacked 

any written agreement or documentation such as a purchase order establishing that there was a 

fixed agreement by the customer to buy the product. Certain shipping documents also indicated 

that product for some sales shipped after the end of the quarter. In general, the shipping dates for 

product listed on bills of lading (a detailed list of a shipment of goods), invoices, and inventory 

records were inconsistent with each other.  

34. At the time, Parekh was the finance director for Neptune, responsible for the 

recognition of revenue at Neptune. Parekh approved and certified Neptune’s financial statements 

for the purpose of consolidating Neptune’s financial statements into Evoqua’s.  

35. There were no middle managers in the finance group at Neptune: all finance 

group personnel reported directly to Parekh. Parekh was the ultimate decision maker inside the 

Neptune finance group.  

36. Parekh was also heavily involved in aspects of Neptune’s business outside of 

traditional finance. For example, towards the ends of fiscal quarters, he often negotiated sales 

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terms directly with customers. He also participated in weekly meetings with sales and operations 

personnel, and people outside the finance group often sought his approval and direction.  

37. Parekh knew or was reckless in not knowing that Neptune’s financial statements 

included revenue from transactions that lacked basic written documentation to recognize 

revenue. 

B. Parekh Caused Evoqua to Improperly Recognize Revenue During the 
First Two Quarters of Fiscal 2017 
 

i. Neptune “Pulled Forward” Revenue Into Earlier Quarters 
     

38. After Evoqua acquired Neptune, Evoqua’s products segment set aggressive 

revenue goals for Neptune to achieve in fiscal year 2017. In an effort to meet these goals, 

Neptune sought to accelerate sales orders expected in later quarters into earlier quarters. 

39. Parekh engaged in a recurring practice of “pulling forward” a future month’s sales 

orders to meet a current month’s financial target, and then having to make up for the lost sales 

that would have occurred and been recognized in the following months. The concept of pulling 

forward sales into earlier periods was not a secret to senior management of Evoqua, as it was 

frequently referenced in quarterly operations meetings as part of the plan to meet the current 

quarter’s forecast. Pulling forward revenue is not necessarily improper so long as all of the 

criteria for revenue recognition are met for the pulled forward sale. However, the practice results 

in sales that could be recognized as revenue in later periods instead being recognized as revenue 

in earlier periods, and creates pressure each subsequent period to make up for sales that were 

pulled forward into a prior period to fill the resulting gap in revenues in the later periods. This 

pressure can result in revenue being recognized before all of the criteria for revenue recognition 

are met. This is what happened at Neptune under Parekh’s watch.  

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40. Under historical practices at Neptune, the customer would have to accept 

shipment of the product earlier than anticipated in order for Neptune to pull forward the sale. 

Convincing a customer to do so could be a significant hurdle for several reasons if the customer 

did not need the product until a future date. For example, shipping the product starts the clock on 

how many days a customer has to remit payment. Also, some customers lacked space to store 

Neptune’s products (which were quite large) securely and safely before installation.  

41. By improperly recognizing revenue prior to shipment to the customer, Parekh was 

able to circumvent some of these hurdles and enhance Neptune’s ability to pull forward sales.  

42. In order to convince customers to place orders earlier than the customer desired, 

Parekh caused Neptune to change the terms of standard sales arrangements. For example, 

Neptune offered customers various discounts and extended payment terms. Neptune also offered 

to store product for customers, and ship the product at a future time when customers actually 

wanted delivery. Many of these altered sales arrangements did not permit Neptune to recognize 

revenue under GAAP. Nonetheless, Parekh allowed such sales arrangements to proceed and 

permitted the improper recognition of revenue. 

ii. Wallace & Tiernan Improperly Recognized Revenue Using 
“Ship in Place” 
 

43. In February 2017, sales personnel at Evoqua division Wallace & Tiernan began 

recognizing revenue improperly under a bill-and-hold arrangement that they referred to as “ship 

in place.” In a ship in place deal, Wallace & Tiernan claimed to sell a customer product, but did 

not ship the product to the customer until a later date when the customer actually wanted the 

product.  

44. A Wallace & Teirnan sales manager explained ship in place to a customer in an 

email in February 2017. Under these arrangements, Wallace & Tiernan would “release” the 

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product for shipment (that is, invoice the customer for the product), store the product in Wallace 

& Tiernan’s factory, care for the product while in storage by rotating it once a month, defer 

billing, and extend the warranty. The sales manager explained to the customer that it “would help 

our bottom line.” In emails to each other, Wallace & Tiernan’s sales staff characterized ship in 

place as a bill-and-hold arrangement. 

45. Throughout late February and early March 2017, a project manager and sales staff 

at Wallace & Tiernan emailed Parekh and others about their plan to utilize ship in place with 

different customers “to aid in revenue recognition.”  

46. Parekh did not advise or instruct the personnel at Wallace & Tiernan that they 

could not recognize revenue for sales transactions when they used ship in place as proposed. 

However, as of the second quarter of fiscal 2017, Parekh knew, or was reckless in not knowing, 

that under Evoqua’s revenue recognition policies and GAAP, revenue could not be recognized 

until product shipped in those circumstances. For example, on November 2, 2016, in connection 

with a potential sale of $250,000 of product, a senior employee at Neptune emailed Parekh and 

one other person stating that Evoqua “can’t recognize the revenue until the equipment leaves our 

factory...we are likely to be running up against a ‘bill and hold’ issue…we can invoice for the 

equipment and collect the cash but we just won’t be able to recognize the revenue….[Parekh] 

will, I’m sure know how to handle.”  

47. The practice of ship in place later spread to Neptune. At Neptune, the term was 

used interchangeably with another term, “ex works,” to mean a sale involving a bill-and-hold 

arrangement. 

C. Parekh and Neptune Begin to Manipulate the Shipping Term “Ex 
Works” to Improperly Recognize Revenue Earlier Than Allowable Under 
GAAP 

 

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48. In fiscal year 2017, Neptune attempted to grow its revenue by accelerating the 

completion of its product sales. Historically, Neptune generally recognized revenue when it 

shipped product to customers. For most sales, Neptune used the shipping term “FOB,” or “free 

on board,” which meant that Neptune arranged, contracted, and paid for shipping of the product 

to the customer. Upon shipment, Neptune would invoice its customer (often including the costs 

of shipping in the invoice) and recognize revenue on the transaction. This practice was consistent 

with Evoqua’s revenue recognition policies and GAAP.  

49. In practice, the date Neptune shipped the product to a customer was a function of 

when the customer wanted delivery and when the product was ready for shipment. If product was 

ready for shipment, but a customer was not ready to receive the product, then traditionally 

Neptune held the ordered product in its inventory until the customer requested Neptune ship it.   

50. As discussed above, the process of “pulling forward” sales typically involved 

requesting that the customer agree to receive product before it wanted or could use the product. 

By at least March 2017, Parekh allowed Neptune to invoice customers and recognize revenue 

without shipping the product to customers. He often justified this practice through the use of the 

shipping term “ex works.”  

51. Like FOB, ex works is one of many International Commercial Terms, also known 

as Incoterms, which define the responsibilities of sellers and buyers for the delivery of goods 

under sales contracts. According to Evoqua’s guidance received by Parekh in November 2016, 

ex works is a term used in shipping arrangements where the seller is “only responsible for 

making the goods available at the seller’s premises. The buyer bears the full risk from the seller’s 

premises to the final destination.”  

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52. Under the ex works shipping term, Neptune was required only to make the 

product available for the customer to pick up. The customer – not Neptune – was responsible for 

arranging, contracting, and paying for shipping the product. While Incoterms define certain 

responsibilities of buyers and sellers related to delivery of goods in a transaction, they do not 

independently dictate the timing of revenue recognition or void the other necessary criteria for 

revenue recognition.  

53. By the end of March 2017, Parekh and others at Neptune working with Parekh 

directed Neptune employees to include the ex works shipping term on various sales documents, 

including invoices. Parekh and others at Neptune working with Parekh did this in order to 

improperly recognize revenue on pending sales orders for which customers had asked for later 

delivery.  

54. For example, a senior employee at Neptune, with Parekh’s knowledge, changed 

the shipping term of a sale destined for a project in Mexico at the end of the second quarter of 

fiscal 2017 to ex works. The Neptune employee requested the change and offered the customer 

numerous discounts to enter into the arrangement in advance of the customer needing the 

product. The Neptune employee informed the customer that it did not need to pick the product up 

before the end of the quarter (and the customer did not pick up the product before the end of the 

quarter). Because Neptune issued an invoice and revenue was recognized at the end of the 

quarter, this amounted to a bill-and-hold arrangement. Despite the product not being shipped 

(meaning, the product was not picked up by the customer before the end of the quarter), and not 

otherwise meeting the criteria for revenue recognition, Parekh and Neptune recognized revenue 

from the sale in violation of GAAP. 

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55. At the end of the second quarter of fiscal 2017, Neptune also improperly 

recognized revenue by shipping product to a third-party warehouse because a customer was not 

ready to receive the product. In this transaction, a customer had placed an order with Neptune for 

product to be installed in a resort casino in New York. During March 2017, using modified sales 

terms, Neptune persuaded the customer to allow Neptune to issue an invoice for approximately 

$100,900 on the last day of the quarter, but hold the product at a third-party warehouse located in 

Rhode Island. Neptune improperly recognized revenue on this sale because it was a bill-and-hold 

arrangement that did not meet the applicable criteria under GAAP.  

D. Neptune Increasingly Relied on “Ex Works” Deals And Other Deficient 
Bill-and-Hold Arrangements to Improperly Recognize Revenue During 
the Third and Fourth Quarters of Fiscal 2017 Leading Up To the IPO 

 
56. Evoqua’s fiscal third quarter 2017 revenue numbers were especially important to 

Evoqua because of the company’s plan to publicly offer its stock for the first time. In June 2017, 

a Neptune sales representative asked a customer to place orders for product earlier than the 

customer needed it so Evoqua could meet its revenue goals. The sales representative 

acknowledged the pressure he and the company faced because of the IPO: “I hate asking for 

favors but the truth is we are getting pressure from above because the S1 was filed for the IPO. 

This quarter will determine the valuation of the company’s stock so you can imagine the push 

coming downhill.”  

57. The General Manager of Evoqua’s A&D Division emailed Parekh and others at 

various times, emphasizing the need to meet targets and record revenue. For example, he stated 

in an email on August 30, 2017, to sales representatives, Parekh, and others that “[w]e set an 

aggressive target of $14M for aquatic project orders to get close to where we need to be as a 

company … we are $3.2M short of our target if all of the projects land …we need to pull to close 

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the $3.2M gap.”  On September 1, 2017, the General Manager stated, “expect the pressure to 

ramp up through the month as the timing for the IPO gets firmed up and the company wants to 

demonstrate a solid performance….” As a result of this internal pressure, Parekh and Neptune 

increasingly engaged in what they referred to as “ex works” deals to artificially boost revenue 

numbers at the end of fiscal quarters during 2017.  

58. In a typical ex works deal, Neptune asked a customer to enter into a sales 

arrangement before the customer wanted the product or before the purchase request was 

finalized. Neptune would then store the product at its facility or at a third-party warehouse to be 

shipped to the customer after quarter end, while recognizing revenue prior to the end of the 

quarter.  

59. Parekh directed Neptune employees on how to handle ex works deals because the 

employees were unfamiliar with them. In a September 2017 email, Parekh provided his 

subordinates instructions, including items that were “needed for ex works jobs,” and directed 

them to “let me know if there were any questions.” Parekh’s instructions failed to adhere to 

revenue recognition requirements under GAAP, however. Parekh knew, or was reckless in not 

knowing, that his instructions failed to adhere to GAAP because at a minimum his instructions 

failed to include relevant guidance received from an accounting colleague.  

60. In order to entice Neptune’s customers to enter into what amounted to a deficient 

bill-and-hold arrangement, Neptune typically offered customers discounts, extended payment 

terms, and the right to exchange product without paying the standard re-stocking fee. These 

revised terms posed little to no risk to the customer, because they were not obligated to pay 

Neptune until a date in the future that corresponded to when they actually needed the product. 

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61. In certain instances, Neptune issued invoices prior to the customer finalizing its 

order. For example, one customer voiced its objection to an ex works deal because Neptune 

billed the customer for product in August 2017 in the approximate amount of $150,000 before 

the design drawings for construction of the customer’s water park had even been approved. In an 

email forwarded to Parekh in December 2017, the customer noted “it would help if you did not 

invoice us until after we send you a [purchase] order and until after the submittals are approved” 

and referenced another project for which the final approved design involved $100,000 in changes 

that occurred during the submittal process.  

62. During negotiations with customers in June 2017, Parekh and a senior employee 

at Neptune stated that the shipping term on purchase orders needed to be changed to ex works. 

But the use of the ex works shipping term did not alter the fact that Neptune intended to make 

arrangements to ship the product. For example, in an email on June 19, 2017 to a sales manager 

and Parekh concerning a product destined for a waterpark to be built in China, the senior 

employee reassured the sales manager that Neptune was paying for shipping despite the use of 

the ex works shipping term. The senior employee further elaborated in a subsequent email later 

the same day to Parekh and two sales managers that ex works needed to be added to the purchase 

order, but that Neptune “will arrange for the shipping once the customer requires it.”    

63. Neptune and Parekh’s use of ex works was a ruse to fraudulently recognize 

revenue prematurely because, as Parekh knew, or was reckless in not knowing, if Neptune’s 

customers did not agree to be responsible for shipping the product, Evoqua’s policies and GAAP 

did not allow revenue to be recognized prior to shipping. The use of the term ex works was 

merely a contrivance: Neptune stored customer product at its facility or at third-party warehouses 

until customers requested Neptune deliver the product to them under Neptune’s standard FOB 

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shipping arrangement. Thus, despite Parekh and Neptune’s requirement that sales documentation 

contain the Incoterm ex works, Neptune retained responsibility for shipping the product to the 

customer. As a result, the risk of loss and ownership of the products stored by Neptune never 

transferred to the customer, and thus Neptune (and, as a result, Evoqua), could not properly 

recognize revenue prior to shipment. 

64. Parekh routinely treated product for ex works deals remaining in Neptune’s 

possession as subject to Neptune’s ownership and control. For example, in the June 2017 

transaction with the customer from China discussed above, Neptune entered into an agreement 

for the sale of more than $900,000 in product using the ex works shipping term. Because there 

was a heightened risk that Neptune and Evoqua might not be able to collect payment from the 

customer on the sale, Neptune was required to secure a letter of credit from a bank that would 

assure payment. Prior to the sale, however, in an email on June 7, 2017, Parekh advised the sales 

agent that Neptune did not require the letter of credit before the execution of the sales agreement 

or before the end of the quarter. Parekh stated that the “latest we can hold off for the [letter of 

credit is] in [m]id July.” Neptune proceeded forward with the recognition of revenue, but the 

customer did not provide a letter of credit for the sale before June 30, 2017. Despite not being 

reasonably assured of payment by the customer (because there was no letter of credit), Parekh 

and Neptune recognized revenue from the sale in the third quarter of fiscal 2017 contrary to the 

requirements of Evoqua policy and GAAP.  

65. In October 2017, Neptune had still not delivered the product to the customer for 

this sale, and the customer had still not provided a letter of credit pursuant to the terms of the 

agreement. In emails in September and October 2017, Parekh told the sales agent that Neptune 

would not release the product to the customer without the letter of credit. In his October 2017 

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email, Parekh stated that “if they do not pay then we can bring shipment back.” Had the 

customer assumed the risks and rewards of ownership when the product was ready for pick-up, 

purportedly in June 2017, the product would have belonged to the customer as of that date and 

Neptune would not be able to withhold the product from delivery to the customer. Because 

delivery had not yet occurred and the other payment contingencies were not resolved before the 

end of the June 2017 fiscal quarter, Parekh knew, or was reckless in not knowing, that the risk 

and rewards of ownership could not have passed to the customer in June 2017 or even by the end 

of the fiscal year 2017. Despite this, Parekh caused Neptune (and thus Evoqua) to improperly 

recognize revenue for this order. 

66. Another of Neptune’s customers submitted five purchase orders in the third and 

fourth quarters of fiscal 2017 following a June 2017 email from a Neptune sales representative 

requesting that the customer “help” Neptune out. Two of these purchase orders were for 

prospective projects for which the customer explicitly told the Neptune sales representative not 

to ship the product being ordered. In fact, Neptune did not ship any of the orders in the fourth 

quarter ended September 30, 2017, but it improperly recognized more than $700,000 of revenue 

in that quarter on these transactions.  

67. In late October 2017, following receipt of the invoice for certain of those orders, 

the customer inquired of the Neptune sales representative, “The [ ] jobs are just arriving this 

week and next, so the Net 90 should be from Oct 30 not September.” That is, the customer 

believed that their obligation to pay for the product occurred when the product actually shipped 

(or was delivered), consistent with their prior dealings with Neptune. The email from the 

customer was forwarded to Parekh in October 2017, but Parekh made no adjustments to reverse 

the revenue that had previously been improperly recognized in the prior period. 

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68. Under Parekh’s supervision, Neptune improperly recognized nearly $14.5 million 

of revenue over the course of fiscal year 2017 for products that were not shipped in that time 

frame, including ex works deals. The following chart summarizes these transactions by quarter. 

Period # of Orders 

Inappropriate 
Revenue Amount 

($ millions) 
Q1 FY17 3  $                 3.1  
Q2 FY17 4                     1.5  
Q3 FY17 9                     2.0 
Q4 FY17 39                     7.9  

  55  $               14.5  
 

69. While each transaction involves unique circumstances and documentation, the 

underlying transactions follow a general pattern of Neptune personnel soliciting a customer to be 

invoiced early in exchange for additional discounts and extended payment terms, and then 

improperly recognizing revenue prior to shipment without assessment of the revenue recognition 

criteria.  

E. Parekh Also Utilized Ex Works Deals At Another Division-Level 
Company 
 

70. In July 2017, Evoqua acquired Olson Irrigation Systems (“Olson”) and integrated 

it as a division-level company into Evoqua’s A&D Division, for which Parekh was the Finance 

Director. In an email dated September 6, 2017, Parekh proposed to a senior manager in Evoqua’s 

products segment that Olson engage in an “early buy program.” The program was designed to 

“enhance September revenue” by about $180,000. Parekh explained that Evoqua would either 

ship product to customers in September (the “preferred” option) or “if there is a delay in 

shipping, [the product] would be held in our factory Ex Works…to be shipped out over the next 

60 days.” Thus, Parekh was using the ex works shipping term to improperly recognize revenue 

for product that Evoqua could not or would not ship prior to the end of the reporting period.  

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F. Evoqua’s Public Filings with the SEC Contained Inflated Revenue as a 
Result of Parekh’s Misconduct 

 
71. Evoqua’s October 18, 2017 and October 20, 2017 Form S-1/A Registration 

Statement (declared effective on November 1, 2017) and its November 3, 2017 IPO Prospectus 

publicly reported revenue figures that were inflated with improperly recognized revenue. In its 

registration statements and prospectus, Evoqua included in its financial statements $5.7 million 

of revenue it had not earned for the first three quarters of fiscal 2017 because the putative 

revenue was for product that had not shipped to the customer and otherwise failed to meet the 

requirements of GAAP. As a result, the registration statement and the IPO Prospectus did not 

contain accurate figures for the amount of revenue and earnings that Evoqua made for these 

respective periods. 

72. In addition, the registration statements and IPO Prospectus both included an 

estimated $8 million of revenue that Evoqua expected to be recognized in the fourth quarter of 

fiscal 2017 for product that had not shipped to the customer and otherwise failed to meet the 

requirements of GAAP. 

73. As further discussed below, Evoqua subsequently filed its fourth quarter results 

and full year 2017 results, including the improperly recognized revenue, in a Form 8-K and Form 

10-K filed with the Commission on December 1, 2017 and December 4, 2017, respectively. By 

including the improperly recognized revenue, Evoqua’s revenue and Adjusted EBITDA (or 

“Earnings Before Interest, Taxes, Depreciation, and Amortization,” a key financial metric used 

by the company) results were in line with the forecasted range presented for the respective 

periods; without the improperly recognized revenue, the results would not have been in line with 

the forecasts. As a result, Evoqua’s fraudulently inflated revenue numbers were materially 

misleading to investors and potential investors. 

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74. The following chart represents how, without the fraudulently inflated revenue, 

Evoqua’s financial results would have been below the forecasted range that had been first 

disclosed in the November 3, 2017 IPO Prospectus and below the consensus estimates predicted 

by third-party analysts who followed Evoqua’s financial performance at that time--information 

that would have been important to investors.  

 Fourth Quarter 2017 Fiscal Year 2017 
($ millions) Revenue Adj. EBITDA Revenue Adj. EBITDA 
Preliminary Range, per Nov. 2017 IPO Prospectus $354-$357 $69-$72 $1,245-$1,248 $205-$208 
Analyst Consensus, referenced by Evoqua in Nov. 2017 $356 $71 $1,247 $207 
As Reported, per Form 8K and Form 10-K in Dec. 2017 $357 $71 $1,247 $208 
As Adjusted, to correct inappropriate revenue $349 $67 $1,236 $200 
As Adjusted, compared to Preliminary Range ($5) ($2) ($9) ($5) 
As Adjusted, compared to Analyst Consensus ($7) ($4) ($11) ($7) 

 
IV. Evoqua Discovers Parekh’s Misconduct And Reports the Improper Revenue in 

Public Filings with the SEC 

A. An Internal Evoqua Hotline Complaint Alleged that Neptune Was 
Manipulating Revenue 

75. In or around November 2016, an employee in Evoqua’s internal audit group was 

made aware of concerns that Neptune management was manipulating shipping terms to 

improperly recognize revenue prior to shipment in fiscal year 2016. The employee subsequently 

documented the concerns in Evoqua’s internal compliance system, also known as a hotline or 

helpline system, which is an electronic reporting tool available to Evoqua employees to express 

concerns for further review and consideration by Evoqua’s compliance department. The 

allegation documented into the internal hotline complaint specified that Neptune finance people, 

including Parekh, manipulated certain terms “in the system [that changed] the recognition of 

revenue from October to September even though the products were not picked up.”  

76. A few months later, Evoqua’s compliance department initiated an investigation 

into the hotline complaint. The internal audit group concluded its investigation in March 2017. 

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On March 14, 2017, Evoqua’s compliance personnel emailed the results of the investigation to 

several of Evoqua’s finance executives. The compliance department found Neptune’s 

documentation of sales arrangements was lacking or contained inconsistencies in shipping dates 

(thus identifying several areas for improvements in Neptune’s revenue recognition process). For 

example, the investigation found: (i) 10 of the 16 transactions, or 63% of the transactions 

selected for review by the compliance department, did not have any purchase order or contract, 

(ii) 13% of the transactions had a ship date on the bill of lading that was one day later than the 

ship date listed on the invoice, and (ii) 100% of the sample selections “had inventory ship post 

dates that were three or more days later than the ship date listed on the invoice.”  

77. Despite the findings from the internal investigation, Evoqua failed to 

acknowledge that it had erroneously recognized revenue from these transactions, evaluate 

whether the errors were material, or assess whether the identified documentation deficiencies and 

discrepancies from 2016 also impacted the first half of fiscal 2017. Instead, the company 

continued to improperly recognize revenue during fiscal 2017 as discussed above. Evoqua failed 

to verify that process improvements were sufficiently implemented at Neptune such that revenue 

recognition was in compliance with GAAP going forward. 

B. Evoqua’s Independent Auditor Learns of the Hotline Complaint and 
Neptune’s Use of Ex Works During a Routine Audit 
 

78. Public companies are required to have their financial statements, and the 

information and documentation behind them, audited by an independent auditor. Evoqua retained 

an independent auditor beginning in time periods before it became a public company in 

November 2017, and this independent auditor continued to audit Evoqua’s financial statements 

after its IPO. In connection with standard fiscal year end audit procedures in September 2017, 

and as part of their normal procedures to review anything to do with accounting or fraud, 

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Evoqua’s independent auditor learned of the November 2016 hotline complaint. The auditor 

requested information from Evoqua, including workpapers and documentation related to the 

internal investigation that was conducted, as well as the memo documenting the findings and 

conclusion. 

79. On September 7, 2017, Evoqua’s compliance manager anticipated that the 

independent auditor might want to evaluate whether the process improvements identified from 

the investigation into the 2016 hotline complaint were implemented, and suggested that Parekh 

and others be prepared. Parekh was told by Evoqua’ compliance manager that the independent 

audit team would “most likely be testing a hefty sample selection for cut-off procedures.” Cut-

off procedures are audit procedures designed to review specific transactions at the end and 

beginning of a financial reporting period to ensure the criteria for revenue recognition was met in 

the period revenue was recognized. However, Parekh did not initially advise anyone at Evoqua 

or the independent auditor regarding the change to timing of revenue recognition due to 

Neptune’s ex works deals, which could have impacted the independent auditor’s cut-off 

procedures.  

80. In its initial review for the audit for the fiscal year ended September 30, 2017, the 

independent auditor found a large percentage of revenue recognized right before the end of the 

fiscal year. The auditor requested from certain customers an “audit confirmation letter,” which is 

an inquiry sent to a customer to establish the contents of the accounting records of the entity 

being audited.  

81. In response to this request, the auditor received an email from a Neptune customer 

on November 2, 2017 expressing concern that Neptune recognized revenue in September 2017 

for sale of a product the customer still had not received over a month later. Around this time, the 

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independent auditor informed Evoqua finance personnel that Parekh told the independent auditor 

that Neptune was using the ex works Incoterm and invoicing customers when the product was 

ready and held at Neptune’s warehouse. As a result of its initial work, the independent auditor 

became concerned because almost all of the transactions they selected for review had the ex 

works term, and almost all of the product (approximately $9 million of revenue) had not been 

shipped as of year-end. The independent auditor recognized this as a bill-and-hold issue.  

82. The independent auditor then expanded the scope of its testing of Evoqua’s sales 

transactions and revenue recognition, but limited its review to transactions recognized as revenue 

in August and September 2017 based on its mistaken understanding that the bill-and-hold 

transactions started at that time. Evoqua did not disclose to the independent auditor the full 

extent of the use of bill-and-hold transactions. As a result, the independent auditor’s review did 

not include all of the improper bill-and-hold deals for fiscal year 2017.  

83. Parekh and Evoqua senior management worked closely with the auditor in their 

transaction-by-transaction review. Parekh collected and distributed documentation on more than 

30 transactions, and he oversaw the completion of a bill-and-hold checklist to determine whether 

the criteria for revenue recognition had been met. In addressing the auditor’s concerns, Evoqua 

senior management became aware of the extent and magnitude of Neptune’s improper bill-and-

hold revenue recognition practice. 

84. Most of the transactions that had been recognized as revenue, but not yet shipped, 

were found by the independent auditor to not meet the criteria for revenue recognition for the 

quarter ended September 30, 2017. The auditor did not object to some of the remaining 

transactions due, in part, to erroneous or incomplete information provided by Evoqua. For 

example, Evoqua recognized approximately $800,000 of revenue on a purported sale to a 

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European customer (“Customer A”). Parekh had reported to the independent auditor that 

Neptune shipped the product to Customer A a few days after September 30. But Parekh knew, or 

was reckless in not knowing, that this product had shipped to a third-party warehouse at 

Neptune’s expense, and not to Neptune’s customer.  

85. In an email from September 2017 in which Parekh provided instructions to his 

subordinates for ex works jobs, he also told his subordinates that they needed a “[p]acking list 

with items that are ready and quarantined (Here or at [the third party warehouse]).” Later in 

February 2018, a Neptune shipping manager sent Parekh a list of ex works “jobs that are still at” 

the third-party warehouse (amounting to millions of dollars of product). Included within the list 

was the product for the reported sale to Customer A. After Parekh left Neptune, his successor 

located in August 2018 product purportedly sold to Customer A still sitting in the third-party 

warehouse. When Parekh’s successor called Parekh and confronted him with the information that 

Neptune product reportedly sold to customers was sitting in a warehouse in Rhode Island, Parekh 

acknowledged that he knew about the product sitting there. Parekh told his successor that he had 

planned to write-off or reverse the revenue associated with the product in the third-party 

warehouse, but had not yet done so before leaving Evoqua. Parekh therefore knew that Neptune 

was using a third party warehouse to store ex works orders. And thus Parekh knew, or was 

reckless in not knowing, that the use of the third party warehouse was equivalent to storing on 

site at Neptune. Despite this, Parekh represented to the auditor that shipment to the third party 

warehouse constituted shipment to the customer. Based on Parekh’s inaccurate representation, 

the independent auditor concluded erroneously that revenue had been properly recognized. 

86. Parekh also provided other incorrect information to the auditor during its audit of 

Evoqua’s revenue and sales transactions. For example, on September 30, 2017, Neptune invoiced 

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a customer (“Customer B”) approximately $114,000 for the purpose of preserving a discount for 

Customer B. This was not a real sale at that time, however, because Customer B did not submit a 

purchase order to Neptune until afterwards on October 6, 2017. Neptune also agreed with 

Customer B, in an email dated October 25, 2017, that it would send Customer B the “actual 

invoice” once the filter shipped from Neptune to Customer B. Neptune shipped the filter to 

Customer B in February 2018. Internally, Customer B recorded that the invoice for the sale was 

dated February 15, 2018.  

87. Nonetheless, Parekh informed the independent auditor via email on November 17, 

2017 that Neptune had shipped the product for the sale to Customer B in September 2017 before 

the end of Evoqua’s fiscal year. Parekh also informed the auditor that Evoqua properly 

recognized revenue from the purported sale. As backup support, Parekh provided the auditor the 

sham September 30, 2017 invoice mailed to Customer B and a shipping document purportedly 

reflecting that Neptune shipped the order to Customer B on September 14, 2017. The shipping 

document that Parekh included as support, however, was for a different project.  

88. In November 2017, the independent auditor ultimately determined that Neptune 

had improperly recognized $4.8 million of revenue in September 2017, and attributed this to 

Neptune’s misunderstanding of the ex works shipping term. The auditor’s findings further 

reflected that “when a company utilizes [ex works] shipping terms, the transaction must be 

analyzed as a bill-and-hold transaction” but “management had not done this for many of the 

transactions.”  

89. Evoqua determined that this $4.8 million figure was not material to its fiscal 2017 

financial results, without any documentation of the qualitative and quantitative factors that must 

be considered in assessing the materiality of an error to the financial statements.  

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90. Additionally, the quantified misstatement of $4.8 million excluded $1.5 million of 

additional revenue that was included in the scope of the ex works review and that was recognized 

prior to shipment, but that the independent auditor concluded was “good revenue.” The $4.8 

million error was lower than the initial assessment made by Evoqua’s senior finance personnel, 

yet Evoqua’s senior management undertook no effort to understand why the $1.5 million of 

additional revenue was “good revenue” at the time. Upon a subsequent review of the underlying 

transactions performed by Evoqua years later during the Commission’s investigation, Evoqua 

concluded that these transactions also failed to meet the criteria for revenue recognition in fiscal 

2017. This additional amount, which would have resulted in an aggregate $6.3 million revenue 

misstatement, was not considered in Evoqua’s materiality determination. As a result, Evoqua 

included in its first filings of financial results as a public company millions of dollars of revenue 

and earnings that did not comply with GAAP. 

V. The Improperly Recognized Bill-and-Hold Transactions Resulted in Material 
Misstatements in Evoqua’s Filings with the Commission 

91. One month after the IPO, Evoqua filed its Form 10-K with the Commission in 

December 2017, the company’s first annual filing as a public company. In the Form 10-K, 

Evoqua reported as revenue the improper transactions identified by the independent auditor. 

Evoqua senior management made the decision to not adjust the revenue in the Form 10-K (that 

is, Evoqua did not back out the improper transactions that had already been identified). Had 

Evoqua done so, its reported revenues would have fallen below the range of the estimated 

revenue for the fourth quarter and full year of fiscal 2017 that it had provided to the financial 

markets in its registration statements and IPO Prospectus previously filed with the Commission. 

As a result, Evoqua reported earnings within the range forecasted in its November 2017 IPO 

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Prospectus. If not for the improper bill-and-hold transaction revenue, Evoqua would have missed 

the forecast.  

92. Evoqua also did not disclose to the investing public that Neptune had adopted a 

practice of reporting revenues for bill-and-hold transactions or that the practice deviated from 

GAAP and Evoqua’s own revenue recognition policies. Nor did Evoqua disclose that such 

reporting of bill-and-hold transactions had enabled Evoqua to meet or exceed the financial 

forecasts it had announced to investors in the IPO Prospectus or that the impact of accelerating 

revenues could have an adverse impact on future results. 

93. Further, the quantified $4.8 million misstatement that was determined by Evoqua 

senior financial executives to be immaterial in 2017 was only a fraction of the total misstatement 

for the period. In fact, years later, during the Commission’s investigation, Evoqua concluded that 

it improperly recognized revenue on significantly more transactions, comprising more than $18 

million of revenue during the 2017 fiscal year, primarily through the improper use of bill-and-

hold transactions. 

94. In sum, in fiscal year 2017, Parekh caused the A&D Division (and thus Evoqua) 

to improperly recognize net $11.7 million of revenue (which includes the partial offset for 

recognition of revenue that was found to have been improperly recognized in fiscal year 2016). 

Had Evoqua excluded this amount from its financial results in the period, as it should have, 

reported revenues and Adjusted EBITDA each would have fallen below the respective range 

Evoqua provided in its IPO Prospectus. In addition, consolidated Adjusted EBITDA would have 

been approximately $4.4 million less (6%) and $7.6 million less (3.6%) than what was reported 

for the fourth fiscal quarter and full fiscal year 2017, respectively, and the Adjusted EBITDA for 

the business segment that included Neptune would have been approximately 18% and 10% less 

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than what was reported for the fourth fiscal quarter and full fiscal year 2017, respectively. Thus 

the impact of the improperly recognized revenue was both qualitatively and quantitatively 

material to Evoqua’s financial results.  

VI. Evoqua Failed to Disclose in its Fiscal Year 2017 Form 10-K That It Lacked 
Sufficient Internal Controls To Ensure That Revenue Was Properly Reported 

95. In October 2017, Parekh and senior financial management of Evoqua were aware 

of the high-risk findings of the internal controls gaps at Neptune. More specifically, on October 

15, 2017, Evoqua’s internal audit department distributed to various recipients the findings of the 

fiscal 2017 internal controls testing to discuss the results and a plan for remediation of identified 

deficiencies. The findings included that Neptune’s accounting system “does not have a 

systematic control to prevent invoice generation and revenue recognition prior to shipment [and] 

[c]urrently there is not a process in place to ensure orders which have not shipped are not 

invoiced.” The recommendation from Evoqua’s internal audit department was that “management 

should implement a control to review shipments at month end to ensure revenue is recognized in 

the proper period. Evidence of this review should be formally documented and maintained.”  

These findings confirmed that: (a) it was not expected that revenue would be recognized prior to 

shipment, (b) Evoqua senior financial management was made aware of the risks that existed that 

revenue could be recognized prior to shipping, and (c) it was necessary to put a process in place 

to ensure that recognition of revenue prior to shipment did not happen. However, despite the fact 

that this revenue recognition risk at Neptune had been identified and had become a reality in 

fiscal 2017, Evoqua failed to disclose that it possessed a material weakness in its internal 

controls for financial reporting in its fiscal 2017 Form 10-K. A material weakness is a 

deficiency, or combination of deficiencies, in internal control over financial reporting, such that 

there is a reasonable possibility that a material misstatement of the company’s annual or interim 

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financial statements will not be prevented or detected on a timely basis. Disclosure of a material 

weakness could have alerted investors about the deficient state of the internal control 

environment at Evoqua and of the resulting risks. It also would have required Evoqua to be held 

accountable for remediating the material weakness by implementing a plan and timeline for 

remediation. Failure to report a material weakness was misleading about the company’s control 

environment. Further, an effective process was not put in place in fiscal 2018 and revenue 

continued to be improperly recognized prior to shipment at Neptune.  

VII. Evoqua Did Not Timely Inform Its Independent Auditor of A 2017 Hotline 
Complaint 

96. At the time that Evoqua’s independent auditor was conducting its review of the 

September 2017 revenue transactions at Neptune, Evoqua received another internal hotline 

complaint concerning Neptune. On November 8, 2017, this complaint alleged that “empty crates 

in beaver dam counted as finished product at the end of the fiscal year [2017] along with a 

questionable ‘ex works’ policy to create revenue for product not shipped.” Beaver Dam, 

Wisconsin is another location of the Neptune division-level company for which Parekh was the 

finance director. Evoqua senior management were all aware of the allegation.  

97. Evoqua engaged a regional consulting firm to investigate the allegations. The 

consulting firm performed site visits in mid-November 2017 at Neptune’s two locations (Rhode 

Island and Wisconsin). The firm noted that a late September order may have been unpackaged 

but still counted as revenue before it was repackaged, as well as several improper ex works 

transactions. The firm was engaged in its investigation of the allegations about improper revenue 

recognition involving ex works transactions at the exact same time as Evoqua’s independent 

auditor was questioning Evoqua about the same practice. A draft report of the investigation 

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findings was dated November 22, 2017, and the final report was dated December 1, 2017, three 

days before the fiscal 2017 financial statements were filed on December 4, 2017. 

98. Evoqua’s senior financial executives did not disclose to the independent auditor 

the allegations of the November 2017 hotline complaint or the findings of the firm investigating 

the complaint prior to the firm’s issuance of its audit opinion. Evoqua’s senior financial 

executives did not disclose the allegations or the existence of the investigation to the independent 

auditor prior to Evoqua publicly filing its financial statements for fiscal year 2017. The 

disclosure of a suspected fraud to the independent auditors could have reasonably impacted the 

scope of the fiscal 2017 audit. 

99. When the independent auditor did learn of the complaint as part of their January 

2018 review of Evoqua--after the filing of the 2017 Form 10-K--it communicated its concerns to 

Evoqua that the company should have timely informed the auditor about the allegations. The 

auditor advised Evoqua that it is critical for the independent auditor to be informed of fraud 

allegations on a timely basis. 

VIII. Evoqua Continued to Improperly Recognize Revenue Through Bill-and-Hold Deals 
In Fiscal Year 2018 

100. The effects of pulling forward revenue into fiscal 2017 and improperly 

recognizing revenue prior to shipment had a detrimental impact on Evoqua’s first fiscal quarter 

of 2018. For example, as reported in Evoqua’s Form 8-K and Form 10-Q filed with the 

Commission on February 6, 2018 and February 7, 2018, respectively, revenues in the first 

quarter of 2018 for the reporting segment that included Neptune decreased $1.5 million, or 2.2%, 

from the corresponding quarter in the prior year. Evoqua informed the public that this was an 

“expected decline in revenues… primarily due to the timing of larger projects completed in the 

first quarter of the prior year in the Aquatics product line.” However, the larger projects 

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recognized in the first quarter of the prior year included a $2 million project that was improperly 

recognized in the first quarter of 2017 at Neptune. Had Evoqua not inflated its 2017 financial 

results by nearly $12 million, including the $2 million improperly recognized in the first quarter 

of 2017, revenues in the first quarter of fiscal 2018 would have increased by nearly $5.3 million, 

or 7.7%, in the first quarter of 2018 over the prior year, a materially different result for the 

segment than what was reported. Thus the improper revenue recognition in fiscal 2017, was 

causing 2018 financial results to appear worse than they otherwise would have.  

101. In early 2018 (a few months after the independent auditor informed Evoqua that 

Neptune improperly applied the shipping terms to revenue recognition), Parekh developed 

another means to book revenue prior to shipping despite having been specifically apprised of the 

extensive bill-and-hold criteria in November 2017 and despite Evoqua’s internal audit findings in 

October 2017 that there should be a control put in place at Neptune to ensure revenue was not 

recognized on orders that hadn’t shipped.  

102. Specifically, on November 8, 2017, following the identification of the ex works 

issue, the independent auditor sent Evoqua its firm’s guidance on bill-and-hold transactions, 

which included consideration of ex works terms. This guidance was shared with Parekh, and 

specifically applied by Parekh and Evoqua to evaluate the ex works transactions that were 

reviewed during the audit that had been recognized prior to shipment in 2017. In addition to the 

extensive bill-and-hold criteria, the guidance stated: 

Because of the restrictive nature of the criteria discussed above, bill and hold transactions 
rarely result in revenue recognition prior to the customer taking delivery of the goods 
(and then only if all of the other basic criteria for revenue recognition have been met). 

 
As a result, Parekh and Evoqua were on notice at least as of November 2017, not only of the 

extensive bill-and-hold criteria, but of the fact that, “prior to shipment, the arrangement should 

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be evaluated using the bill-and-hold criteria” and that “bill and hold transactions rarely result in 

revenue recognition prior to the customer taking delivery of the goods.” In other words, Parekh 

knew, or was reckless in not knowing, the bill and hold criteria well enough to prevent any 

mistaken application of the factors going forward. 

103. In February and March 2018, Parekh directed Neptune personnel to introduce a 

“warehouse deal” to its customers whereby Neptune would send product to a third-party 

warehouse for storage. This was not an entirely new concept. In fiscal 2017, Neptune had 

shipped purportedly sold product to the same third-party warehouse, including to “quarantine” 

customer orders with ex works terms until the customer was ready for delivery. Parekh, however, 

was on notice following the fiscal 2017 audit that recognizing revenue prior to shipping to the 

customer was prohibited unless specific GAAP criteria were satisfied. As a work around, Parekh 

developed a variation on the quarantine deal whereby Neptune would ship product to a 

warehouse under terms it negotiated but which Neptune’s customers paid.  

104. A February 26, 2018 email from Neptune’s logistics manager to his contact at the 

third-party warehouse described the warehouse deal as “an option we want to present to 

customers to try and pull in some jobs.” On February 28, 2018, Neptune’s logistics manager 

provided the rates he obtained on Parekh’s behalf for the storage proposal to Parekh. On March 

16, 2018, Parekh sent an email to Neptune’s customer service and support team director for the 

Americas region, with the subject line “Warehouse deal,” and included a proposal to “Business 

Partners” regarding “a viable and economic warehousing option” for the third party warehouse 

provider and proposed monthly rates for “warehousing.”  

105. In practice, however, the “warehouse deal” was not appealing to customers who 

did not want to pay for storage and subsequent shipping, assume risk earlier than necessary, or 

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handle logistics. Instead, Neptune shipped product to the third-party warehouse at the end of 

reporting periods; paid for shipping to, and storage at, the warehouse; and recognized revenue on 

the sales, even though the customer had not taken the product, had not assumed risk of loss, or in 

some cases had no present obligation to pay for the order. 

106. For example, Evoqua recognized revenue on the sale of product for the 

construction of two animation-themed waterparks in late March 2018 during the second quarter 

of fiscal year 2018. One sale totaled approximately $142,000 and the second totaled 

approximately $33,200. Neptune shipped the products for both sales to a third-party warehouse 

in March 2018. In April 2018, during the third quarter of fiscal year 2018, one of Neptune’s 

shipping managers emailed the warehouse and directed them to ship the product to the customer 

locations located in California and Texas, respectively. Neptune paid for the storage and 

shipping of the product.  

107. Another example of a 2018 improper bill-and-hold transaction involved a sale to a 

customer in China. In order to pull forward and prematurely recognize nearly $3 million on an 

order to the customer in China, on May 24, 2018, Neptune offered the warehouse deal to “lock in 

pricing” and “avoid the price increase … for shipments that occur after June 30th.” Neptune also 

“made arrangements with a local warehouse that will store [the] customer equipment at very 

competitive rates.” Parekh sent an email on June 11, 2018 with a list of proposed terms to 

Neptune’s senior manager in China, including offering an additional $50,000 discount, which 

covered the “cost of the warehouse with 3 month storage, freight to Shanghai and full 

insurance.” Despite the appearance that the customer would pay for storage pursuant to the 

warehouse deal, Neptune was effectively paying for storage via the discount offered to the 

customer. Nevertheless, the third-party warehouse used for storage confirmed it only billed 

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Neptune for storage. Additionally, almost the entire payment was contingent on shipment from 

the warehouse to the end customer site or thereafter.  

108. While Parekh was involved in the negotiation of the terms, the transaction was 

also visible to other Evoqua personnel. Neptune (and thus Evoqua) recognized the revenue in the 

quarter ended June 30, 2018 without assessment of the bill and hold criteria, or other criteria for 

revenue recognition, which it would have failed. Thus, Neptune was in substance doing in fiscal 

2018 the same as what it did in fiscal 2017 when it improperly relied on the ex works shipping 

term to recognize revenue prior to shipping. This transaction would have failed bill and hold 

criteria because Neptune, not the customer, was proposing use of a warehouse; there wasn’t an 

otherwise substantial business purpose for the customer having the goods stored in a warehouse; 

and there were payment contingencies including that more than 95% of the payment was 

dependent on receipt and acceptance of the products by the end-user. Thus, risks and rewards of 

ownership had not passed when the product shipped to the warehouse in June 2018.  

109. Parekh offered these terms to entice the customer because this sale was critical to 

Evoqua’s fiscal third quarter ending June 30, 2018. On June 19, 2018, in response to concerns 

from the local Neptune team in China about the deal, Neptune’s general manager stated in an 

email that Parekh was copied on, “[w]ithout this order our quarter will be a disaster…[Parekh] 

and I will call you at 8:15 to discuss options.” On June 29, 2018, the same day revenue was 

ultimately recognized for the order, a senior executive of Evoqua congratulated the sales team in 

China for their efforts and wrote, “A meaningful completion for the quarter and a terrific order to 

close out.” 

110. The $3 million sale was meaningful to Evoqua. Evoqua reported its results for 

fiscal third quarter 2018 in its Form 8-K and Form 10-K filed with the Commission on August 7, 

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2018, and reported that revenues for the business segment that included Neptune increased $8 

million, or 9.5%, over the reported revenues in the corresponding quarter in the prior year, of 

which this particular sale represented nearly $3 million, or approximately 33%. Despite the 

meaningful impact this sale had on the quarter, Evoqua failed to ensure proper internal controls 

were in place to evaluate the terms and conditions of this arrangement for proper revenue 

recognition. Had Evoqua properly addressed the red flags that it had been presented with 

regarding this order, it should have concluded the criteria for revenue recognition had not been 

met.  

111. Thus, during fiscal year 2018, Neptune and Parekh were using the same bill-and-

hold tactics they had used in fiscal 2017 to pull-forward sales, by enticing customers with price 

discounts, extended payment terms, and coordinating a storage solution in exchange for 

recording the sale earlier than when the customer needed the underlying product.  

112. Over the course of the first nine months of fiscal 2018, Parekh allowed Neptune, 

and therefore Evoqua, to improperly recognize at least $4.1 million of revenue related to nine 

transactions through additional bill-and-hold deals. This was improper revenue recognition 

because the bill-and-hold deals failed several revenue recognition criteria. First, Neptune’s 

proposal meant that Neptune, not the customer, was effectively requesting a bill-and-hold 

transaction with no substantial business purpose other than for Neptune to accelerate revenue 

recognition. Second, Neptune actually paid for the storage costs, typically by paying the third-

party storage provider (meaning that delivery had not occurred) and/or by providing customers 

credit in the approximate amount of the storage costs. Third, Neptune was responsible for 

coordinating the shipment of the goods to the final customer destination (meaning that delivery 

had not occurred prior to that point in time). Fourth, payment was often contingent on delivery to 

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the final customer destination (a collectability concern under basic revenue recognition criteria, 

as well as indicia that risk had not passed to the customer since the customer was not obligated to 

pay until a subsequent date).  

IX. After Parekh Departs, Evoqua Discovers Products Left In a Warehouse Despite 
Having Recognized Revenue in 2017 

113. Parekh left his employment at Neptune in August 2018. Soon thereafter, Parekh’s 

successor learned of Parekh’s use of the third-party warehouse to improperly recognize revenue. 

Among other things, Parekh’s successor discovered 36 Defender filters at the third-party 

warehouse for which more than $2 million of revenue had been previously recognized in an 

earlier interim or annual period.  

114. The discovery of the warehouse was communicated on August 28, 2018 to 

Evoqua senior management, including that revenue from 24 of the 36 Defender filters had been 

improperly recognized as revenue in fiscal 2017 based on the ex works shipping term, had not 

yet shipped to the customer, and were sitting at a warehouse nearly a year later. Evoqua senior 

management was informed that the warehouse was being used “as a storage facility for customer 

unwilling to accept goods at quarter end” and that “risks that Revenue Recognition criteria were 

not met during the past period end still exist.” Additionally, Evoqua senior management was 

informed that “there is probably a revenue cut-off issue in our procedures.” Parekh’s successor 

also confirmed on August 29, 2018 that Neptune was paying for the third-party warehouse costs, 

which he had acknowledged would “be a revenue recognition issue.”  

115. Neptune reversed revenue by approximately $1.4 million in fiscal 2018 for two 

transactions that were improperly recognized in fiscal 2017, under Parekh’s oversight, for 

product that was found in the warehouse. Both of these transactions were part of the fiscal 2017 

ex works deals reviewed for the 2017 audit. While one of these transactions had been quantified 

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as part of the $4.8 million misstatement in fiscal 2017 for failing the bill and hold criteria, the 

other transaction was not part of the misstatement because it was purported to have shipped to 

the customer on or about September 30, 2017. The purported shipment date, however, was not 

accurate, because the product had not shipped to the customer but rather to the third party 

warehouse where it remained until it was discovered nearly a year later. 

116. Despite learning of the existence of the products at the warehouse and the 

potential revenue recognition cut-off issues at Neptune in fiscal 2018, including the correlation to 

prior bill and hold issues, Evoqua senior management did not make efforts to undertake a 

thorough review to, among other things, confirm the magnitude of the issues that were identified 

or the potential impact to prior period financial statements. Further, Evoqua did not apprise the 

independent auditor of these potential issues, despite a pattern of revenue recognition cut-off 

issues at Neptune for the third year in a row.  

117. These facts could have caused the independent auditor to rethink its conclusions 

reached in fiscal 2017 that Neptune’s reliance on the ex works shipping terms was a simple 

misunderstanding of the application of ex works. This is so because even ex works shipping 

terms do not contemplate holding product indefinitely on a customer’s behalf. The independent 

auditor had communicated in November 2017 to Evoqua senior management that “if it is 

determined that [bill and hold] criteria was met and revenue is recognized by the Company and 

then the customer subsequently does not take delivery/pick-up by the specified date, [the auditor] 

would then consider this to be an error related to the 9/30/17 audit and this could trigger a 

reopening of the FY17 audit/potential restatement of FY17 results.” Evoqua, however, did not 

notify its independent auditor that it had found product in a warehouse related to transactions that 

were previously recognized as revenue.  

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X. Neptune Offered Another Warehouse Deal In The Fourth Quarter of Fiscal 2018 

 
118. During the last quarter of fiscal 2018, Neptune had a prospective $7 million 

international order that was in danger of falling through, which would have significantly 

impacted Neptune’s financial results for the fiscal quarter and year end. This would have been 

the largest order Neptune ever closed and despite being part of the forecasted results for the year, 

the receipt of a definitive order and the closing of the sale had been delayed from several earlier 

periods. Evoqua senior management informed the public in an August 2018 conference call with 

investors and financial analysts who followed the company (often called an “earnings call”) that 

they expected to deliver several larger aquatics projects in the fourth quarter of that fiscal year 

(ending September 30, 2018), including projects that were on hold and deferred from the third 

quarter. But this project was more than just “on hold” because Evoqua didn’t even have a 

purchase order for it. This was misleading, because it implied a sale was imminent, when in fact 

it was still speculative.  

119. Evoqua was up against a potential earnings miss for the fourth fiscal quarter of 

2018. In a September 27, 2018 email, an Evoqua senior executive wrote to other senior 

executives, “[w]e must hit guidance and simply cannot miss the range as we close this year… 

Reach out individually to all GMs and let them know to pull whatever they can….” In attempt to 

try to salvage the quarter, on September 28, 2018, Neptune entered into an arrangement with a 

purportedly new distributor, who would in turn sell the underlying product to an end-customer 

for a portion of the $7 million prospective order at some unspecified point in the future. This 

contemplated transaction was merely another example of an inappropriate warehouse deal. First, 

the new distributor Neptune identified that would purportedly buy the product had no credit 

history, did only $1 million in annual sales in an entirely different industry, and required 

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extended payment terms. In addition, the distributor had no end-customer lined up to buy the 

product and no capacity to store the product. Despite these risk factors, Neptune recorded $1.2 

million of revenue on September 29, 2018 and stored the product at the same third-party 

warehouse discussed above. Evoqua’s senior management were made aware of the terms and 

conditions of the arrangement, and signed off on extending credit to a new distributor with no 

credit history, thus allowing revenue from the transaction to be recognized in the fourth quarter 

of 2018. 

120. Like certain other transactions Neptune improperly recognized as revenue, the 

transaction ultimately fell through and the underlying product was returned from the third-party 

warehouse to Neptune in fiscal 2020 upon confirmation that the customer would not be taking 

delivery. Neptune paid the third-party warehouse for the outstanding storage costs that were 

supposed to be paid by the customer. Had Neptune conducted a proper bill and hold assessment 

for this transaction at the time revenue was recognized in 2018, it would not have passed 

because, at a minimum, the transaction lacked a substantial business purposes for storage at a 

warehouse with no defined shipment date to the customer and collectability was not reasonably 

assured.  

XI. In October 2018, Evoqua’s Stock Price Dropped 35% When the Company 
Announced a Sizeable Miss In Earnings 

121. In October 2018, at the conclusion of Evoqua’s first full year as a public 

company, Evoqua announced a sizeable miss in earnings for the 2018 fiscal year, including that 

its adjusted EBITDA would be between $213 million to $217 million (an increase of 2.6% to 

4.5% over the previous year) versus the company’s previously stated expected range between 

$235 million to $245 million (an increase of 13% to 18% over 2017). The price for Evoqua’s 

stock dropped 35%, from $13.80 per share to $9.02 per share, on October 30, 2018, the day the 

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company announced the news. Evoqua publicly disclosed in its October 30, 2018 Form 8-K filed 

with the Commission, that the “challenges were primarily concentrated in the Product segment’s 

aquatics business and the Municipal segment. These combined shortfalls are primarily due to 

acquisition system integration issues, supply chain disruptions influenced by tariffs and an 

extended delay on a large aquatics project.” Thus, Evoqua acknowledged publicly that the A&D 

Division was a primary driver of the earnings miss.  

122. While the fourth quarter earnings miss was significant, it was also exaggerated 

because of the material misstatements that had occurred in the periods leading up to and 

including the fourth quarter. For example, in its Form 8-K filed with the Commission on 

November 27, 2018, Evoqua reported that revenues in the business segment in which the A&D 

Division was included, were down nearly $5 million, or 5%, versus the fourth quarter in the prior 

year. However, had Evoqua not improperly recognized revenue, it would have reported increased 

revenues of $2 million, or 2.3%, versus the respective prior period, rather than a decrease. 

Similarly, for fiscal year 2018, Evoqua reported an increase in revenue over the prior year of 

approximately $14 million, or 4%. Had Evoqua not improperly recognized revenue, it would 

have reported an increase in revenue over the prior year of approximately $28 million, or 9%--

more than double the increase than what it reported. These are materially different results for the 

fourth quarter and fiscal year 2018, and misstated the trends of this business segment. 

123. Internal documents sent to Evoqua senior financial management attributed more 

than $8 million of the estimated $15 million revenue miss in September 2018 as due to the 

inability to get customers to take product early and an additional $1.4 million of the revenue miss 

related to “Revenue reversal for inventory sitting at [ ] warehouse.” However, these factors were 

not included in the public explanation for the material earnings miss at Evoqua despite senior 

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financial management of Evoqua internally describing the situation at Neptune as a “[c]omplete 

train-wreck.”  

124. Evoqua acknowledged in its fiscal 2018 Form 10-K, filed with the Commission 

on or about December 11, 2018, that it had a material weakness in its internal control over 

financial reporting, including a number of control deficiencies related to revenue recognition. 

This disclosure was too late, however, because the material weakness existed before fiscal 2018 

and, as a result, investors were misled. The disclosure also stated that the material weakness “did 

not result in any reported misstatements to the financial statements, and there were no changes to 

previously reported financial results.” This was also misleading because material misstatements 

existed in the 2018 and prior period financial results.  

125. Evoqua’s registration statement, prospectuses, Forms 10-K, Forms 10-Q, and 

Forms 8-K filed with the Commission during fiscal year 2017 and through fiscal year  2018 

contained materially false and misleading financial statements with improperly reported revenue, 

in violation of Evoqua’s accounting policies and GAAP:  Specifically, these filings include the 

S-1/A Registration Statement filed with the Commission on or about October 18, 2017 and 

October 20, 2017, the IPO Prospectus filed with the Commission on or about November 3, 2017; 

the prospectus filed with the Commission on or about March 16, 2018; Forms 10-K filed with 

the Commission on or about December 4, 2017 and December 11, 2018; Forms 10-Q filed with 

the Commission on or about February 7, 2018, May 8, 2018 and August 7, 2018; and Forms 8-K 

filed with the Commission on or about December 1, 2017, February 6, 2018, May 8, 2018, 

August 7, 2018, October 30, 2018, and November 27, 2018. In addition, these filings failed to 

disclose Evoqua’s reliance on the practice of reporting revenue from uncompleted sales it treated 

as bill-and-hold transactions, and Evoqua’s material deviations from its publicly stated and 

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internal revenue recognition policies and GAAP. Additionally, in its Form 10-K filed with the 

Commission on or about December 4, 2017 and in its Forms 10-Q filed with the Commission on 

or about February 7, 2018, May 8, 2018 and August 7, 2018, Evoqua failed to disclose a material 

weakness in its internal control over financial reporting despite the severe control deficiencies at 

Evoqua that had a reasonable possibility of causing a material misstatement and that such control 

deficiencies had yet to be remediated and thus continued to pose risk that a material 

misstatement would not be prevented or detected on a timely basis in future periods.  

126. Each of these filings was materially false and misleading because the disclosure 

failures and improper omissions concerned sales and finance practices that are important to a 

reasonable investor. 

127. In addition, the financial statements in each of these filings were misstated 

materially due to a variety of quantitative and qualitative factors, including but not limited to: 

• Certain financial statements quantitatively misstated revenue and/or adjusted 

EBITDA, a key financial metric of Evoqua, at the consolidated and/or at the 

respective segment level for a business segment that played a significant role in 

Evoqua’s profitability as evidenced by the fact that when this business segment 

underperformed in fiscal 2018 it resulted in an overall material earnings miss; 

• Certain financial statements concealed Evoqua’s failure to meet publicly reported 

expectations for revenue and adjusted EBITDA as well as analyst consensus 

estimates, and/or concealed the magnitude of those failures; 

• Certain financial statements were the product of non-compliance with its own 

policies, the circumvention of its controls, and fraud as discussed above; 

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• Misstatements in certain financial statements affected Evoqua’s compliance with 

regulatory requirements (for example, violation of US GAAP); 

• Misstatements in certain financial statements masked a change in earnings or 

trends (for example, distorting adjusted EBITDA growth percentages);  

• The nature and amount of the misstatements in certain financial statements may 

have resulted in a significant negative market reaction; and 

• The financial statements did not disclose the recurring practice of pulling forward 

sales and the potentially adverse impact it could have (and did have) on 

subsequent period filings.  

 

FIRST CLAIM 

Violation of Section 10(b) of the Exchange Act and Rules 10b-5(a) and (c) Thereunder  
(Parekh) 

 
128. The Commission repeats and incorporates by reference the allegations in 

paragraphs 1 through 127 above as if set forth fully herein. 

129. Parekh intentionally, knowingly, or recklessly engaged in a fraudulent scheme 

through the series of acts detailed above. Parekh directly or indirectly (a) employed devices, 

schemes, or artifices to defraud; and (c) engaged in acts, practices, or courses of business which 

operated or would operate as a fraud or deceit upon any persons, including purchasers or sellers 

of Evoqua’s securities.  

130. As set forth above, Parekh employed devices, schemes, or artifices to defraud by 

fraudulently recognizing revenues from uncompleted sales, knowing that the revenue would be 

included in the company’s public statements and filings with the Commission. He knew or was 

reckless in not knowing that recognizing revenues from these transactions was improper under 

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applicable accounting rules and/or would mislead investors about the financial condition of the 

company. Parekh also concealed details of these uncompleted sales from Evoqua personnel, 

including, but not limited to, (1) making a widespread change at Neptune to the ex works 

shipping term to recognize revenue prior to shipment in fiscal 2017 without vetting the change 

with Evoqua’s corporate accounting group, (2) using the ex works term in form but not substance 

to rationalize recognition of revenue prior to shipment, (3) storing ex works orders for extended 

periods of time, including up to a year in a warehouse, after revenue had been recognized, and 

(4) introducing the warehouse deal in fiscal 2018 and continuing to recognize revenue and store 

customer orders in a warehouse after specifically being told revenue recognition prior to 

shipment must be assessed under the bill and hold criteria.  

131. Parekh directly or indirectly made use of the means of instrumentalities or 

interstate commerce, or the mails, or of the facilities of a national securities exchange, in 

connection with these transactions, acts, practices, and courses of business. 

132. As a result, Parekh violated and, unless enjoined, will continue to violate Section 

10(b) of the Exchange Act [15 U.S.C. § 78j(b)] and Rules 10b-5(a) and (c) thereunder [17 

C.F.R. § 240.10b-5(a) and (c)]. 

SECOND CLAIM 

Violation of Section 17(a)(1) of the Securities Act 
(Parekh) 

 
133. The Commission repeats and incorporates by reference the allegations in 

paragraphs 1 through 127 above as if set forth fully herein. 

134. As detailed above, Parekh directly or indirectly, in the offer or sale of securities, 

using the means and instruments of transportation or communication in interstate commerce or 

by use of the mail, with scienter, employed devices, schemes, or artifices to defraud.  

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135. As set forth above, Parekh employed devices, schemes, or artifices to defraud by 

intentionally, knowingly or recklessly recognizing revenues from uncompleted sales, knowing 

that the revenue would be included in the company’s public statements and filings with the 

Commission. He knew or was reckless in not knowing that recognizing revenues from these 

transactions was improper under applicable accounting rules and/or would mislead investors 

about the financial condition of the company. Parekh also concealed details of these uncompleted 

sales from Evoqua personnel, including, but not limited to, (1) making a widespread change at 

Neptune to the ex works shipping term to recognize revenue prior to shipment in fiscal 2017 

without vetting the change with Evoqua’s corporate accounting group, (2) using the ex works 

term in form but not substance to rationalize recognition of revenue prior to shipment, (3) storing 

ex works orders for extended periods of time, including up to a year in a warehouse, after 

revenue had been recognized, and (4) introducing the warehouse deal in fiscal 2018 and 

continuing to recognize revenue and store customer orders in a warehouse after specifically 

being told revenue recognition prior to shipment must be assessed under the bill and hold 

criteria. 

136. As a result, Parekh violated and, unless enjoined, will continue to violate Section 

17(a)(1) of the Securities Act [15 U.S.C. § 77q(a)(1)]. 

THIRD CLAIM 

Violation of Section 17(a)(2) of the Securities Act 
(Evoqua and Parekh) 

 
137. The Commission repeats and incorporates by reference the allegations in 

paragraphs 1 through 127 above as if set forth fully herein. 

138. As detailed above, Evoqua and Parekh, acting negligently, directly or indirectly, 

in the offer or sale of securities, using the means and instruments of transportation or 

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communication in interstate commerce or by use of the mail, obtained money or property by 

means of untrue statements of a material fact or by omitting to state a material fact necessary to 

make the statements made, in light of the circumstances under which they were made, not 

misleading. 

139. As a result, Evoqua and Parekh violated and, unless enjoined, will continue to 

violate Section 17(a)(2) of the Securities Act [15 U.S.C. § 77q(a)(2)]. 

FOURTH CLAIM 

Aiding and Abetting Violations of Section 17(a)(2) of the Securities Act 
(Parekh) 

 

140. The Commission repeats and incorporates by reference the allegations in 

paragraphs 1 through 127 above as if set forth fully herein. 

141. As set forth above, Parekh knowingly or recklessly provided substantial 

assistance to Evoqua for, directly or indirectly, in the offer or sale of securities, using the means 

and instruments of transportation or communication in interstate commerce or by use of the mail, 

obtaining money or property by means of untrue statements of a material fact or by omitting to 

state a material fact necessary to make the statements made, in light of the circumstances under 

which they were made, not misleading. 

142. As a result, pursuant to Section 15(b) of the Securities Act [15 U.S.C. § 77(b)], 

Parekh aided and abetted, and unless enjoined will continue to aid and abet violations of Section 

17(a)(2) of the Securities Act. 

FIFTH CLAIM 

Violation of Section 17(a)(3) of the Securities Act 
(Evoqua and Parekh) 

 

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143. The Commission repeats and incorporates by reference the allegations in 

paragraphs 1 through 127 above as if set forth fully herein. 

144. As detailed above, Evoqua and Parekh, acting negligently, directly or indirectly, 

in the offer or sale of securities, using the means and instruments of transportation or 

communication in interstate commerce or by use of the mail, engaged in transactions, practices, 

or course of business which operated or would operate as a fraud or deceit upon the purchaser. 

145. As a result, Evoqua and Parekh violated and, unless enjoined, will continue to 

violate Section 17(a)(3) of the Securities Act [15 U.S.C. § 77q(a)(3)]. 

SIXTH CLAIM 

Violation of Section 13(a) of the Exchange Act and  
Rules 12b-20, 13a-1, 13a-11, and 13a-13 thereunder  

(Evoqua) 
 

146. The Commission repeats and incorporates by reference the allegations in 

paragraphs 1 through 127 above as if set forth fully herein. 

147. Section 13(a) of the Exchange Act and Rules 13a-1, 13a-11, and 13a-13 

thereunder require an issuer such as Evoqua to file with the Commission accurate annual reports 

on Forms 10-K, 8-K, and 10-Q respectively. Rule 12b-20 requires that these reports contain such 

further material information as is necessary to make the required statements in the reports not 

misleading.  

148. As set forth above, the registration statements, prospectuses, Forms 10-K, Forms 

10-Q, and Forms 8-K filed by Evoqua during 2017 and 2018 contained materially false and 

misleading financial statements with improperly reported revenue, in violation of Evoqua’s 

accounting policies and GAAP:  Specifically, these filings include the S-1/A Registration 

Statement filed with the Commission on or about October 20, 2017; the IPO Prospectus filed 

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with the Commission on or about November 3, 2017; the prospectus filed with the Commission 

on or about March 16, 2018; Forms 10-K filed with the Commission on or about December 4, 

2017 and December 11, 2018; Forms 10-Q filed with the Commission on or about February 7, 

2018, May 8, 2018 and August 7, 2018; and Forms 8-K filed with the Commission on or about 

December 1, 2017, February 6, 2018, May 8, 2018, August 7, 2018, October 30, 2018, and 

November 27, 2018. In addition, these filings failed to disclose Evoqua’s reliance on the practice 

of reporting revenue from uncompleted sales it treated as bill-and-hold transactions and 

Evoqua’s material deviations from its publicly stated and internal revenue recognition policies 

and GAAP. Additionally, in the Form 10-K filed with the Commission on or about December 4, 

2017 and Forms 10-Q filed with the Commission on or about February 7, 2018, May 8, 2018 and 

August 7, 2018, Evoqua failed to disclose a material weakness in its internal control over 

financial reporting. 

149. As a result, Evoqua violated and, unless enjoined, will continue to violate Section 

13(a) of the Exchange Act and Rules 12b-20, 13a-1, 13a-11, and 13a-13 thereunder [15 U.S.C. 

§§78m(a); 17 C.F.R. §§240.12b-20, 240.13a-1, 240.13a-11, and 240.13a-13]. 

SEVENTH CLAIM 

Aiding and Abetting Violations of  
Section 13(a) of the Exchange Act and Rules 12b-20, 13a-1, 13a-11, and 13a-13 thereunder  

(Parekh) 
 

150. The Commission repeats and incorporates by reference the allegations in 

paragraphs 1 through 127 above as if set forth fully herein. 

151. As set forth above, Parekh knowingly or recklessly provided substantial 

assistance to Evoqua in its failures to file with the Commission accurate and complete 

information, reports, and documents, and such further material information necessary to make 

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the required statements, in light of the circumstances under which they were made, not 

misleading.  

152. As set forth above, the registration statements, prospectuses, Forms 10-K, Forms 

10-Q, and Forms 8-K filed by Evoqua during 2017 and 2018 (as listed in paragraph 148 above) 

each contained false and misleading financial statements which improperly reported revenue that 

was attributed to purported bill-and-hold transactions, in violation of Evoqua’s accounting 

policies and GAAP.  

153. Parekh knowingly or recklessly provided substantial assistance to Evoqua in its 

failures to file with the Commission accurate and complete information, reports and documents 

for each Form 10-K, Form 10-Q, Form 8-K, and other documents listed in Paragraph 148 above, 

which Evoqua filed with the Commission.  

154. As a result, pursuant to Section 20(e) of the Exchange Act [15 U.S.C. § 78(t)(e)], 

Parekh aided and abetted, and unless enjoined will continue to aid and abet violations of Section 

13(a) of the Exchange Act [15 U.S.C. § 78m(a)] and Rules 12b-20, 13a-1, 13a-11, and 13a-13 

thereunder [17 C.F.R. §§ 240.12b-20, 240.13a-1, 240.13a-11, and 240.13a-13].  

EIGHTH CLAIM 

Violation of Section 13(b)(2)(A) of the Exchange Act 
(Evoqua) 

 
155. The Commission repeats and incorporates by reference the allegations in 

paragraphs 1 through 127 above as if set forth fully herein. 

156. Section 13(b)(2)(A) of the Exchange Act requires an issuer such as Evoqua to 

make and keep books, records, and accounts which, in reasonable detail, accurately and fairly 

reflect the transactions and dispositions of its assets. 

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157. By failing to make or keep books, records and accounts that in reasonable detail 

accurately and fairly reflected its transactions and disposition of its assets, Evoqua violated and, 

unless enjoined, will continue to violate Section 13(b)(2)(A) of the Exchange Act [15 U.S.C. § 

78m(b)(2)(A)]. 

NINTH CLAIM 

Aiding and Abetting Violations of  
Section 13(b)(2)(A) of the Exchange Act  

(Parekh) 
 

158. The Commission repeats and incorporates by reference the allegations in 

paragraphs 1 through 127 above as if set forth fully herein. 

159. As set forth above, through his conduct Parekh knowingly or recklessly provided 

substantial assistance to Evoqua in its failure to make and keep books, records, and accounts, 

which, in reasonable detail, accurately and fairly reflected the transactions and dispositions of its 

assets.  

160. As a result, pursuant to Section 20(e) of the Exchange Act [15 U.S.C. § 78t(e)], 

Parekh aided and abetted, and unless enjoined, will continue to aid and abet, violations of 

Section 13(b)(2)(A) of the Exchange Act [15 U.S.C. § 78m(b)(2)(A)]. 

TENTH CLAIM 

Violation of Section 13(b)(2)(B) of the Exchange Act 
(Evoqua) 

 
161. The Commission repeats and incorporates by reference the allegations in 

paragraphs 1 through 127 above as if set forth fully herein. 

162. Section 13(b)(2)(B) of the Exchange Act requires an issuer such as Evoqua to 

devise and maintain a system of internal accounting controls sufficient to provide reasonable 

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assurances that its financial statements are prepared in conformity with GAAP or any other 

criteria applicable to those statements.  

163. As set forth above, the financial statements in the Forms 10-K, 10-Q, 8-K, and 

other documents listed above in paragraph 125 recognized revenue in ways that did not comply 

with GAAP and that had a material impact on the company’s financial results. 

164. As a result, Evoqua violated and, unless enjoined, will continue to violate Section 

13(b)(2)(B) of the Exchange Act [15 U.S.C. § 78m(b)(2)(B)]. 

ELEVENTH CLAIM 

Aiding and Abetting Violations of  
Section 13(b)(2)(B) of the Exchange Act  

(Parekh) 
 

165. The Commission repeats and incorporates by reference the allegations in 

paragraphs 1 through 127 above as if set forth fully herein. 

166. As set forth above, through the conduct described above and by failing to ensure 

that sufficient accounting controls existed, Parekh knowingly or recklessly provided substantial 

assistance to Evoqua in its failure to devise and maintain internal accounting controls sufficient 

to provide reasonable assurances that transactions were recorded as necessary to permit the 

preparation of financial statements in conformity with GAAP and to maintain accountability for 

assets.  

167. As a result, pursuant to Section 20(e) of the Exchange Act [15 U.S.C. § 78t(e)], 

Parekh aided and abetted, and unless enjoined, will continue to aid and abet, violations of 

Section 13(b)(2)(B) of the Exchange Act [15 U.S.C. § 78m(b)(2)(B). 

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TWELFTH CLAIM 

Violation of Section 13(b)(5) of the Exchange Act 
(Parekh) 

 
168. The Commission repeats and incorporates by reference the allegations in 

paragraphs 1 through 127 above as if set forth fully herein. 

169. Section 13(b)(5) of the Exchange Act prohibits any person from knowingly 

circumventing or knowingly failing to implement a system of internal accounting controls or 

from knowingly falsifying any book, record, or account. 

170. As set forth above, Parekh knowingly circumvented and/or knowingly failed to 

implement a system of internal accounting controls at Neptune, and therefore at Evoqua through 

Neptune, and directly or indirectly, knowingly falsified, or caused, through the conduct described 

above, to be falsified, Evoqua’s books, records, and/or accounts. 

171. As a result, Parekh violated and, unless enjoined, will continue to violate Section 

13(b)(5) of the Exchange Act [15 U.S.C. §§78m(b)(5)]. 

THIRTEENTH CLAIM 

Violation of Exchange Act Rule 13b2-1 
(Parekh) 

 
172. The Commission repeats and incorporates by reference the allegations in 

paragraphs 1 through 127 above as if set forth fully herein. 

173. As set forth above, Parekh, directly or indirectly, falsified or caused to be falsified 

Evoqua’s books, records, and/or accounts subject to Section 13(b)(2)(A) of the Exchange Act.  

174. As a result, Parekh violated, and unless enjoined, will continue to violate Rule 

13b2-1 promulgated under the Exchange Act [17 C.F.R. § 240.13b2-1]. 

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PRAYER FOR RELIEF 

WHEREFORE, the Commission requests that this Court: 

A. Enter permanent injunctions, including an injunction restraining Defendants and 

each of their agents, servants, employees and attorneys and those persons in active concert or 

participation with them who receive actual notice of the injunction by personal service or 

otherwise, including facsimile transmission or overnight delivery service, from directly or 

indirectly engaging in the conduct described above, or in conduct of similar purport and effect, 

as follows: 

a. For Evoqua:  conduct in violation of Section 17(a)(2) and (3) of the Securities Act 

[15 U.S.C. § 77q(a)(2) and (3)], and Sections 13(a), 13(b)(2)(A), and 13(b)(2)(B) 

of the Exchange Act [15 U.S.C. §§  78m(a), 78m(b)(2)(A), 78m(b)(2)(B)] and 

Rules 12b-20, 13a-1, 13a-11, and 13a-13 thereunder [17 C.F.R. §§  240.10b-5(a) 

and (c), 240.12b-20, 240.13a-1, 240.13a-11, 240.13a-13]; 

b. For Parekh: conduct in violation of Sections 17(a) of the Securities Act [15 U.S.C. 

§ 77q(a)], and Sections 10(b) and 13(b)(5) of the Exchange Act [15 U.S.C. §§ 

78j(b), 78m(b)(5)] and Rules 10b-5(a) and (c) and 13b2-1 promulgated under the 

Exchange Act [17 C.F.R. §§ 240.10b-5(a) and (c), 240.13b2-1], and aiding and 

abetting Evoqua’s violations of Section 17(a)(2) of the Securities Act [15 U.S.C. § 

77q(a)(2)] and Sections 13(a), 13(b)(2)(A), and 13(b)(2)(B) of the Exchange Act 

[15 U.S.C. §§ 78m(a), 78m(b)(2)(A), 78m(b)(2)(B)] and Rules 12b-20, 13a-1, 13a-

11, and 13a-13 thereunder [17 C.F.R. §§ 240.12b-20, 240.13a-1, 240.13a-11, 

240.13a-13]; 

B. Prohibit pursuant to Section 20(e) of the Securities Act [15 U.S.C. § 77t(e)] and 

Section 21(d)(2) of the Exchange Act [15 U.S.C. §78u(d)(2)] Defendant Parekh from acting as 

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an officer or director of any issuer that has a class of securities registered under Section 12 of the 

Exchange Act [15 U.S.C. § 78l] or that is required to file reports under Section 15(d) of the 

Exchange Act [15 U.S.C. § 78o]. 

C. Require Defendants to pay an appropriate civil monetary penalty pursuant to 

Section 20(d) of the Securities Act [15 U.S.C. § 77t(d)] and Section 21(d)(3) of the Exchange 

Act [15 U.S.C. § 78u(d)(3)]. 

D. Require Parekh to pay disgorgement plus prejudgment interest on his ill-gotten 

gains pursuant to Sections 21(d)(5) and (7) of the Exchange Act [15 U.S.C. § 78u(d)(5) and (7)]. 

E. Retain jurisdiction over this action to implement and carry out the terms of all 

orders and decrees that may be entered; and,  

F. Award other and further relief as the Court deems just and proper. 

     

    Respectfully submitted, 

SECURITIES AND EXCHANGE COMMISSION 
By its attorneys, 
 
/s/ David H. London                           
David H. London (Mass. Bar No. 638289) 
  Trial Counsel 
Jonathan R. Allen (Mass. Bar No. 680729) 
  Senior Enforcement Counsel 
Peter Bryan Moores (Mass. Bar No. 658033) 
  Senior Enforcement Counsel 
 
Attorneys for Plaintiff 
SECURITIES AND EXCHANGE COMMISSION 
33 Arch Street, 24th Floor 
Boston, MA  02110 
(617) 573-8997 (London direct) 
(617) 573-4590 (Fax) 
[email protected] (London email) 
 
 

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Local Counsel: 
 
Bethany N. Wong 
Assistant United States Attorney 
Chief, Civil Division 
One Financial Plaza, 17th Floor 
Providence, Rhode Island 02903 
(401) 709-5000 
(401) 709-5001 (Fax) 
Email: [email protected] 
 

 
DATED: March 13, 2023 

Case 1:23-cv-00105   Document 1   Filed 03/13/23   Page 60 of 60 PageID #: 60


	COMPLAINT
	SUMMARY OF THE ACTION
	JURISDICTION AND VENUE
	DEFENDANTS
	STATEMENT OF FACTS
	I. Evoqua’s Business
	II. Background on Revenue Recognition
	III. Beginning in Late 2016 and Continuing Through the November 2017 IPO, Evoqua Improperly Recognized Millions of Dollars in Revenue
	IV. Evoqua Discovers Parekh’s Misconduct And Reports the Improper Revenue in Public Filings with the SEC
	V. The Improperly Recognized Bill-and-Hold Transactions Resulted in Material Misstatements in Evoqua’s Filings with the Commission
	VI. Evoqua Failed to Disclose in its Fiscal Year 2017 Form 10-K That It Lacked Sufficient Internal Controls To Ensure That Revenue Was Properly Reported
	VII. Evoqua Did Not Timely Inform Its Independent Auditor of A 2017 Hotline Complaint
	VIII. Evoqua Continued to Improperly Recognize Revenue Through Bill-and-Hold Deals In Fiscal Year 2018
	IX. After Parekh Departs, Evoqua Discovers Products Left In a Warehouse Despite Having Recognized Revenue in 2017
	X. Neptune Offered Another Warehouse Deal In The Fourth Quarter of Fiscal 2018
	XI. In October 2018, Evoqua’s Stock Price Dropped 35% When the Company Announced a Sizeable Miss In Earnings

	FIRST CLAIM
	SECOND CLAIM
	THIRD CLAIM
	FOURTH CLAIM
	FIFTH CLAIM
	SIXTH CLAIM
	SEVENTH CLAIM
	EIGHTH CLAIM
	NINTH CLAIM
	TENTH CLAIM
	ELEVENTH CLAIM
	TWELFTH CLAIM
	THIRTEENTH CLAIM
	PRAYER FOR RELIEF