The US Securities and Exchange Commission is recommending cease and desist orders are issued against both the chairman and CEO of publisher SouthPeak Interactive, and the company itself.
The actions against Terry Phillips, chairman, and Melanie Mroz, CEO, relate to allegedly violating rules for disclosing company details in a quarterly report filed for the period ended March 31, 2009.
The SEC is also seeking a civil injunction and a penalty against Philips for allegedly aiding and abetting violations.
The news comes as SouthPeak's chief financial officer, Reba McDermott, left the company after only nine months in the position - and is now threatening legal action against her former employers over the termination.
"Legal proceedings have been threatened by the company's former CFO against the company in connection with allegations of discrimination and retaliation against a whistle blower and wrongful termination," read documents filed at the SEC.
Phillips himself has faced a cease and desist order in 2001, and later paid a $50,000 penalty in 2007, for taking merchandise from Take-Two and not making any effort to sell it on before returning the goods.
For the last financial period, SouthPeak reported revenues of $1.4 million and a profit of $600,000.
UPDATE: On December 6, Southpeak issued a statement to GamesIndustry.biz, claiming that former chief financial officer Reba McDermott is not taking legal proceedings against the company.
"Her separation from the company was amicable and there are no allegations of wrongful termination or lawsuits stemming from her departure. Reba chose to leave the company on her own accord and we wish her well."
It also admitted that the company had not filed financial reports correctly with regards to a loan made by chairman Terry Philips.
"The SEC staff's inquiry was fully disclosed in our public filings and was based on the manner in which we recorded a loan during this quarter which was made by our chairman to help support our business but was not properly reported in our financial statements.
"During the investigation, we fully explained to the SEC staff that when we discovered the error in our statements, we acted promptly on our own accord with the support of our auditor and outside counsel to fully rectify the issue. The recommendation of the SEC staff resulting from this investigation is that cease and desist orders issue in which we agree to comply with our SEC filing obligations in the future.
"We are currently negotiating the exact provisions of the orders," it continued. "The SEC is not proposing that our company be prohibited from doing business as some our saying , but rather, as is the case with proceedings of like nature, the SEC is trying to assure our company's compliance in the future with our reporting obligations."
SouthPeak added: As we mature as a public company, we have taken great pains to install better internal controls and procedures to further assure our adherence with financial reporting obligations and we are seeking a replacement for our prior CFO, who was instrumental in installing better controls and procedures, with the experience necessary to help us make sure similar incidents do not happen again."