On May 23, the U.S. Securities and Exchange Commission (SEC) announced settled charges against Gaia, Inc., a Colorado-based company offering video subscription services in the wellness industry. According to the SEC, the company had heavily overstated its paid subscriber count, retaliated against an internal whistleblower, and issued 23 severance agreements that impeded communication with the SEC.
Gaia agreed to a $2 million civil penalty. Paul C. Tarell, Jr., the company’s CFO who caused the alleged subscriber overstatement, agreed to a $50,000 civil penalty.
“This is a good sign that the SEC will aggressively enforce its rules against illegal nondisclosure agreements,” said Stephen M. Kohn, whistleblower attorney at Kohn, Kohn & Colapinto and author of the forthcoming Rules for Whistleblowers.
The number of paid subscribers had wrongfully included users who were gifted free trials, according to the SEC. Gaia allegedly offered these free trials to the 20,000 users whose previous payment was unsuccessful due to declined credit cards, and though only 5,000 took this opportunity to prepay or update their information, all 20,000 were included in the paid subscriber count announced in earnings calls and reports.
In August of 2019, a whistleblower repeatedly relayed the overstatement concerns with Gaia’s senior management. According to the SEC Order, “the Whistleblower reasonably believed that overstatement was a possible violation of the federal securities laws,” though “...
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