A California federal judge has squashed a dismissal request from former View Inc. chief financial official (CFO) Vidul Prakash. The U.S. Securities and Exchange Commission (SEC) accuses Prakash of failing to correctly accrue for and disclose more than $20 million in liabilities to address a manufacturing defect with its “smart” windows.

The U.S. Securities and Exchange Commission accuses Prakash of failing to correctly accrue for and disclose more than $20 million in liabilities to address a manufacturing defect with its “smart” windows.

Prakash submitted a motion to dismiss in September 2023 in response to the accusations. He claimed the SEC failed to plead that he acted negligently and that he is exempt from the standard of strict liability; however, U.S. District Judge Beth Labson Freeman said on Feb. 26, 2024, that the SEC had shown enough evidence to back up its claims that Prakash acted negligently multiple times.

“The Complaint adequately alleges that Prakash was or should have been sufficiently aware of the underlying facts and his responsibilities such that a reasonable person of ordinary prudence in his position would have taken efforts to ensure that View properly accounted for and disclosed its liabilities for the installation costs,” Freeman wrote in her decision.

The SEC charges Prakash with violating negligence-based antifraud, proxy disclosure and books and records provisions of the federal securities laws. It seeks permanent injunctions, civil penalties and Prakash’s disbarment as an officer and director.

The suit stems from the 2019 discovery of a defective sealing component in View’s “smart” windows. Court documents state that View’s warranty covered the replacement of the faulty windows, but the warranty did not specify coverage of installation costs. However, View officials decided to cover the installation costs as the company sought to establish goodwill.

Prakash was tasked with determining the warranty accrual costs for the manufacturing defect. The SEC states that Prakash gathered a finance and accounting personnel team to determine the proper warranty accrual for expenses associated with the defective windows. After a review, the team advised View not to “disclose the installation costs as part of the warranty liability because View’s written warranty did not obligate View to pay installation costs.”

Court documents argue that Prakash knew his team excluded costs associated with the installation costs and why they did it. Still, he did nothing to ensure his team considered all the facts or corrected their findings.

As the CFO, Prakash signed and submitted SEC filings that included the team’s conclusions despite being made aware of information that undermined a fundamental assumption of the analysis, the SEC writes. As a result, Jason Bussey, an attorney for the SEC, claims in the court documents that View repeatedly provided investors and the public with materially inaccurate financials.

The SEC sued View initially for failing to disclose $28 million in projected warranty-related liabilities. According to the SEC, View reported warranty liabilities of $22 million to $25 million to the Commission between December 2020 and May 2021. However, SEC officials say View failed to include the additional cost of shipping and installing the new windows. View should have reported total warranty liabilities of $48-$53 million.

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