## Facts

- MusclePharm Corporation, a Nevada corporation headquartered in Denver, became a public company in 2010 and experienced rapid revenue growth through 2013.
- The SEC found the company was unprepared for public-company reporting and lacked adequate accounting infrastructure, internal controls, and accurate books and records.
- From 2010 through July 2014, the company filed Commission reports that the SEC found materially false and misleading due to a series of accounting and disclosure failures.
- The SEC found MusclePharm failed to disclose executive perquisite compensation over multiple reporting periods, including personal benefits and expense payments provided to executives.
- The SEC found the company failed to disclose related-party transactions and failed to disclose executive-officer bankruptcies.
- The SEC also found MusclePharm engaged in unregistered offers and sales of its securities.
- The SEC instituted cease-and-desist proceedings under Securities Act § 8A and Exchange Act § 21C, and the matter was resolved by the Commission’s acceptance of MusclePharm’s Offer of Settlement, without admitting or denying the findings (except jurisdiction).

## Issues

1. Whether MusclePharm violated Securities Act registration requirements by offering and selling securities without an effective registration statement or a valid exemption.
2. Whether MusclePharm violated Exchange Act reporting provisions by filing materially false or misleading periodic reports through misstatements and omissions concerning executive perquisites, related-party transactions, and executive-officer bankruptcies.
3. Whether MusclePharm violated the Exchange Act’s books-and-records and internal accounting controls provisions by failing to keep accurate records and maintain adequate internal controls supporting financial reporting and required disclosures.
4. What remedial relief, penalties, and compliance undertakings were appropriate in a settled administrative proceeding.

## Decision

- The SEC accepted MusclePharm’s settlement offer and entered an administrative cease-and-desist order.
- The SEC found MusclePharm committed violations of Securities Act registration provisions and Exchange Act provisions governing reporting, books and records, and internal accounting controls.
- The order required MusclePharm to cease and desist from committing or causing violations and any future violations of the cited provisions.
- The order imposed civil monetary penalties.
- The order required remedial undertakings, including retention of an independent consultant to review and recommend improvements to policies, procedures, controls, and training related to expense payments and disclosure compliance (including executive perquisite disclosure).

## Legal Principles

- Issuers must ensure Commission filings are not materially false or misleading; omissions regarding executive compensation elements, related-party dealings, and executive background information can be material.
- Executive perquisites are a form of compensation that must be tracked, evaluated under applicable disclosure rules, and accurately disclosed when required.
- Exchange Act § 13(b)(2)(A) requires issuers to make and keep books, records, and accounts that accurately and fairly reflect transactions and dispositions of assets.
- Exchange Act § 13(b)(2)(B) requires issuers to devise and maintain a system of internal accounting controls sufficient to provide reasonable assurances about transaction authorization, recording, and reporting.
- Securities Act § 5 prohibits offers and sales of securities absent registration or an available exemption; administrative cease-and-desist authority may be exercised under Securities Act § 8A and Exchange Act § 21C.
- In settled administrative orders, the SEC may impose prospective compliance undertakings (such as independent consultant reviews) in addition to cease-and-desist relief and penalties.

## Conclusion

The SEC concluded that MusclePharm’s deficient controls and recordkeeping contributed to materially misleading public filings, including failures to disclose executive perquisites, related-party transactions, and executive bankruptcies, and that the company also engaged in unregistered securities offerings and sales; the settlement imposed cease-and-desist relief, civil penalties, and corrective undertakings centered on strengthening disclosure and internal-control practices.


In re MusclePharm Corp., Admin. Proc. File No. 3-16788 (S.E.C. Sept. 8, 2015)