Brian H. Casutto, Matthew J. Zucco, and Kevin R. Harris, CPA, Ryan C. Drexler

The Securities and Exchange Commission yesterday filed a settled complaint charging Las Vegas-based nutritional supplement company MusclePharm Corp.'s former Executive Vice President of Sales and Operations, Brian H. Casutto, former Vice President of Sales, Matthew J. Zucco, and former contract Chief Financial Officer, Kevin R. Harris, for engaging in improper revenue recognition practices to achieve revenue growth demanded by its former Chief Executive Officer, Ryan C. Drexler. The SEC also separately charged Drexler with fraud in a litigated complaint for disclosure violations and control failures.

The SEC's settled complaint alleges that Casutto, with the assistance of Zucco, engaged in a fraudulent scheme to prematurely recognize revenue for orders that remained in MusclePharm's control. The complaint further alleges that Harris should have known that MusclePharm prematurely recognized certain revenue and that MusclePharm overstated other revenue by misclassifying customer credits as advertising expenses rather than as reductions to revenue. The defendants' misconduct allegedly inflated the company's publicly reported quarterly revenues by as much as 25 percent and gross profits by as much as 49 percent.

The SEC's complaint against Drexler alleges that, while CEO, he misled investors about the catastrophic impact of the company's default with institutional noteholders and that he falsely certified that he evaluated the company's internal controls.

Without admitting or denying the SEC's allegations, Casutto, Zucco, and Harris have each consented to the entry of judgments, subject to court approval, which permanently enjoin Casutto and Zucco from violating the antifraud provisions of Section 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder, and Harris from violating the antifraud provisions of Sections 17(a)(2) and 17(a)(3) of the Securities Act of 1933.  The proposed judgments also enjoin defendants from violating or aiding and abetting issuer violations of additional books and records, control, reporting, and proxy solicitation provisions of the Securities Exchange Act of 1934: Sections 13(a) and 13(b)(2)(A) and Rules 12b-20, 13a-1, 13a-11, 13a-13, 13b2-1 (Casutto, Zucco, Harris); Section 13(b)(5) (Casutto, Zucco); Section 14(a) and Rules 14a-3 and 14a-9 (Casutto, Harris); and Section 13(b)(2)(B) and Rule 13a-15(a) (Harris). The proposed judgments require Casutto and Zucco to pay disgorgement with prejudgment interest of $79,760.01 and $15,033.06, respectively; require Casutto and Harris to pay a civil penalty of $207,183 and $50,000, respectively, and reserve the issue of Zucco's civil penalty for further determination by the court; and bar Casutto from serving as an officer or director of a public company for five years.

The SEC charged Drexler with violating and/or aiding and abetting violations of the antifraud provisions of Section 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder.  The complaint also charges Drexler with violating the reporting, control, and proxy solicitation provisions of Section 14(a) of the Exchange Act and Rules 13a-14, 13a-15(b)-(c), 14a-3, and 14a-9 thereunder, as well as with aiding and abetting MusclePharm's reporting and control violations of Sections 13(a) and 13(b)(2)(B) of the Securities Exchange Act of 1934 and Rules 12b-20, 13a-1, 13a-11, 13a-13, and 13a-15(a) thereunder.  In addition, Drexler is being charged with violating the clawback provision of Section 304(a) of the Sarbanes Oxley Act of 2002 ("SOX"). The complaint seeks injunctive relief, civil penalties, reimbursement to MusclePharm under SOX 304(a), and an officer and director bar.

Both complaints were filed in the U.S. District Court for the Central District of California.

The SEC's investigation was conducted by Jennifer Turner and Michael D'Angelo and supervised by Mary Brady, Nicholas Heinke, and Jason Burt. The litigation is being led by Zachary Carlyle and Sharan Lieberman and supervised by Mr. Burt, Mr. Heinke, and Gregory Kasper.