Evoqua Water Technologies Corp. Agrees to Pay $8.5 Million Criminal Penalty for Fraudulent Revenue Recognition

PROVIDENCE – United States Attorney Zachary A. Cunha announced today that Evoqua Water Technologies Corp. (EVOQUA), a Pennsylvania company with a division in Rhode Island, has entered a non-prosecution agreement (NPA) with the U.S. Attorney’s Office relating to EVOQUA’s securities fraud arising from improper revenue recognition and false statements to its external auditors between late 2016 and 2018. Under the NPA, EVOQUA will pay an $8.5 million criminal penalty. This amount adds to an $8.5 million civil penalty EVOQUA paid to the U.S. Securities and Exchange Commission (SEC) and $16.65 million that EVOQUA paid to settle shareholder class-action claims based on the same course of conduct. The NPA also imposes monitoring, reporting, and compliance obligations on EVOQUA for two years.

United States Attorney Zachary A. Cunha commented, “EVOQUA deceived investors by claiming it had earned revenue when it had not. As the agreed-upon Statement of Facts makes clear, the Government’s investigation identified serious misconduct for which our agreement holds the company accountable. We will continue to use all of our tools to hold accountable those who commit fraud on the financial markets and thus undermine confidence in our public markets.”

“Today’s settlement should make it clear to companies that we are watching to make sure they are accurately reporting their revenue so investors can make a fair assessment of their stock values. What EVOQUA did in this case by falsely claiming it earned revenue when it did not, seriously undermines the public’s trust in our financial system,” said Jodi Cohen, Special Agent in Charge of the FBI Boston Division. “Investor confidence is essential to keeping our financial markets afloat and the FBI is committed to vigorously investigating complex financial crimes and ensuring corporate accountability.”

Under the NPA, EVOQUA accepts responsibility for the actions of its employees and admits to facts sufficient to prove securities fraud, including the following:

Until May 2023, EVOQUA was a corporation headquartered in Pennsylvania with its Aquatics and Disinfection (“A&D”) Division based in Coventry, Rhode Island that provided municipal and industrial water and wastewater treatment and water filtration equipment and services. In May, 2023, EVOQUA’s stock was acquired by XYLEM INC.

From late 2016 through 2018, EVOQUA’s A&D Division falsely inflated and improperly recognized revenue in violation of Generally Accepted Accounting Principles. EVOQUA intentionally and improperly booked revenue from purported sales of products where:

• the sale was contingent and receiving revenue was not reasonably assured;
• the products had not shipped to customers in the quarter during which the revenue was recognized; and/or   
• the component parts had not been completed and/or assembled.

The A&D Division’s improper revenue recognition caused EVOQUA to misstate financial statements as part of its November 2017 initial public stock offering and in subsequent annual and quarterly filings with the SEC. From in or about the fall of 2017 through 2018, EVOQUA also made materially false and misleading statements to and omitted material facts necessary to make statements not misleading to its external auditors concerning EVOQUA’s revenue-recognition practices.

This resolution reflects EVOQUA’s cooperation, acceptance of responsibility for its criminal conduct, remediation efforts, and commitment to enhanced compliance efforts, as well as its prior resolution with the SEC and the shareholder class action. It also takes into account the fact that EVOQUA was acquired by XYLEM, INC. after the conduct at issue in this investigation occurred.

The matter was investigated by the Federal Bureau of Investigation. The case was investigated and prosecuted by First Assistant United States Attorney Sara Miron Bloom and Assistant United States Attorney Kevin Bolan. United States Attorney Cunha thanks the U.S. Securities and Exchange Commission for its valuable assistance with the investigation.

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