SEC fined Latch $1M: revenue overstated up to 107% through its $450M SPAC deal

In December 2020 Latch shipped $147,000 of hardware to a channel partner. The side agreement let the partner return everything without consequence if the project's developer walked away — a condition that never reached the accounting team, so the sale was booked as revenue, and about six months later the hardware came back. The SEC found this was a pattern, not an outlier: revenue was materially overstated from at least January 2019 through March 2022, by roughly 107% in 2019, 39% in 2020 and 50% in 2021.

The machinery behind the numbers was almost embarrassingly practical. Salespeople under short-term quotas persuaded channel partners to take hardware early, attaching unconditional return rights, pay-when-paid terms and free storage — and Latch had no mechanism making them record those terms where finance could see them. Collectability checks failed too: nearly $5.7 million of revenue from one partner produced just $300,000 of cash. And 'distributor cuts' above 20% of retail required sell-through prices the company rarely requested, adding millions of overstatements a year.

The timing turned accounting failure into a securities case: the overstated 2019 and 2020 financials appeared in the prospectus and proxy for Latch's January 2021 SPAC merger, which closed that June with about $450 million in cash proceeds. An audit committee investigation opened in mid-2022; by January 2023 the company said its statements could no longer be relied on. Latch settled without admitting or denying the findings, paying a $1 million civil penalty in four quarterly installments under a cease-and-desist order.

$1M SEC civil penalty; 2019 revenue nearly halved on restatement ($14.9M to $7.2M); records rebuilt for nearly two years before the Dec 2024 restated filing.

Quarterly sales quotas pushed staff to secure purchase orders so hardware could ship and revenue could be booked, sometimes before the end customer needed the product.

Return rights, conditional payment terms and free storage lived in side agreements; Latch had no mechanism ensuring salespeople entered them into the system finance relied on.

Controls could not assess collectability: nearly $5.7 million of revenue was recognized from one channel partner against only $300,000 collected.

'Distributor cuts' above 20% of retail meant transaction prices needed sell-through data the company rarely requested; nonbinding letters of intent were used instead.

Accounting controls never caught up with growth after the first commercial sale in 2016, and the gaps ran straight through the SPAC window.

Revenue recognition breaks where sales terms live outside what finance can see: if side agreements never reach accounting, every shipment is a potential misstatement.

Latch filed its restated annual report on December 19, 2024: 2019 revenue fell from $14.887 million to $7.187 million, 2020 from $18.061 million to $12.995 million, and 2021 from $41.360 million to $27.613 million. By then the company had replaced nearly its entire workforce, including management, and rebuilt its records transaction by transaction. The SEC expressly credited Latch's cooperation — the audit-committee investigation, new controls over accounting and Sarbanes-Oxley compliance — in accepting the $1 million penalty.