SEC Settles Claim Against Video Service for Whistleblower Retaliation and Falsified Subscriber Counts
- posted: Sep. 19, 2023
- Whistleblower Litigation, Fraud
The U.S. Securities and Exchange Commission (SEC) announced in May that they had settled charges against Gaia, Inc., a Colorado-based company offering video subscription services in the wellness industry. The SEC's investigation revealed that Gaia had not only overstated its paid subscriber count, but also retaliated against an internal whistleblower and issued problematic severance agreements that hindered communication with the SEC.
By settling, Gaia has agreed to pay a $2 million civil penalty, while Paul C. Tarell, Jr., the company's CFO responsible for the subscriber overstatement, will pay a $50,000 civil penalty.
Case background
According to the SEC, Gaia had heavily inflated its paid subscriber count by including users who were gifted free trials. Specifically, the company provided free trials to 20,000 users whose payment attempts failed due to declined credit cards. Although only 5,000 of them later prepaid or updated their information, Gaia included all 20,000 in its reported paid subscriber count during earnings calls and reports.
When a whistleblower raised concerns about the overstatement to Gaia's senior management in August 2019, the company maintained that the subscriber count was accurate. Frustrated with the lack of action, the whistleblower approached the SEC with the information. Four months later, the whistleblower was terminated “for cause” by Gaia, with the company claiming the complaints were “unfounded” and consumed excessive company resources to investigate.
For more than three years, Gaia allegedly included restrictive provisions in 23 severance agreements with former employees. These provisions sought to impede individuals from directly contacting the Commission or reporting possible securities law violations. By asking employees to waive their right to monetary recovery or relief, Gaia's actions contradicted the SEC's Rule 21F-17(a), which explicitly prohibits any action hindering individuals from communicating with the Commission.
Whistleblowers are often afforded protection from retaliation and may be eligible to receive compensation for their assistance. To learn more about your own potential claim, contact a seasoned whistleblower attorney at Kardell Law Group today.
