SmartForce, which was based in Redwood, Calif., has since merged into SkillSoft PLC. According to the SEC, SmartForce's financial statements failed to comply with generally accepted accounting principles by, among other things, recognizing revenue improperly from various types of transactions in which the company engaged, including multiple-element arrangements, reciprocal transactions, and reseller agreements.

David Drummond, former SmartForce CFO, will pay $700,000 to settle the SEC complaint that he helped mislead investors while overseeing SmartForce's finances. Drummond is the current in-house lawyer for Google Inc.

"Recognizing revenue without sound, rigorous analysis is a recipe for false financial statements," said David P. Bergers, director of the SEC's Boston regional office. "Officers must ensure the financials are accurate, and cannot hand off that fundamental responsibility to their subordinates, the auditors, or anyone else."

According to an SEC statement, "Drummond's violations arose in part out of his failure to determine whether SmartForce was improperly recognizing revenue (which it was) on a reseller agreement in which the reseller of SmartForce's product was only required to "endeavor" to sell the software. In addition, Drummond failed to communicate certain information about a reciprocal transaction to the appropriate accounting personnel and took no steps to determine whether the accounting for that transaction complied with GAAP. Consequently, SmartForce improperly recognized revenue on the transaction."

The SEC also instituted proceedings against Dublin, Ireland, firm Ernst & Young Chartered Accountants and the lead partner on the SmartForce engagement, Denis O'Hogan, for engaging in improper professional conduct in connection with multiple audits and periodic reviews of SmartForce's financial statements. Ernst & Young Chartered Accountants were censured and agreed to pay $725,000, an amount equal to its audit fees. The firm, a member of Ernst & Young Global, also agreed to make several enhancements in its audit practices of U.S. public companies in areas such as training and staffing of engagements.

The civil actions against Drummond, along with three other former SmartForce executives, were filed in the United States District Court of New Hampshire, where SkillSoft PLC, the successor firm to SmartForce following a 2002 merger, is based.