Hertz Accounting Issues: Restatements, SEC Fine, and Executive Charges

The Hertz accounting scandal refers to a series of financial reporting errors at Hertz Global Holdings, disclosed starting in May 2014, that had overstated the company’s pre-tax income by a cumulative $235 million across fiscal years 2011 through 2013. The errors spanned 17 distinct accounting areas, forced a full restatement completed in July 2015, and led to a $16 million SEC penalty against the company, separate enforcement actions against former CEO Mark Frissora and former controller Jatindar Kapur, and a federal securities class action from shareholders.¹²

What Was Actually Misstated

The largest piece involved how Hertz depreciated its rental fleet. Every car on the lot loses value each month it stays in service, and that lost value has to be booked as an expense. During 2013, Hertz quietly stretched the planned holding periods for many top models from 20 months to 24 or even 30 months. Across the U.S. fleet, the weighted average holding period climbed from 21 to nearly 25 months that year. Spreading depreciation over more months lowered the expense Hertz reported each quarter and made earnings look stronger than they were. The company’s quarterly filings described routine residual-value adjustments but never disclosed the extended holding periods.¹

A second set of errors involved subrogation receivables, the money Hertz bills responsible parties and insurers after a rental car is damaged. Some of those bills never get paid, and accounting rules require an allowance for the expected losses. Hertz’s method understated that allowance for years. An internal audit in May 2013 found a spreadsheet error that had led the company to record no allowance at all for receivables older than 360 days, and even after discovery, staff kept applying the same inadequate write-off rate. On at least three occasions in 2012 and 2013, headquarters directed post-close adjustments to the subrogation accounts that departed from the company’s historical methodology, each one improving reported results by roughly $1 million.¹

Beyond fleet depreciation and receivables, the restatement corrected errors in the capitalization and timing of depreciation for non-fleet assets, incorrect amortization of vehicle licenses and registrations, and misstatements tied to wrecked vehicles.³ The problems were spread across multiple business units, which is why the final restatement reached 17 categories and took more than a year to complete.

Why It Happened

Alongside the restatement, Hertz identified eleven material weaknesses in its internal controls over financial reporting. The SEC’s order cataloged insufficient and inadequately trained financial staff, unclear reporting lines, distraction from conflicting business initiatives, and ineffective controls. The company itself acknowledged “an inconsistent and sometimes inappropriate tone at the top” that contributed to the errors, misstatements, and omissions. In practice, that meant pressure from leadership to hit internal budgets overrode the accounting staff’s ability to report numbers accurately.¹

How It Came to Light

Hertz disclosed the problem in May 2014 by filing a Form 12b-25, which told the SEC it needed extra time to file its first-quarter report because errors in prior periods might require restating financial statements back to 2011. The company’s initial view was that the adjustments for 2012 and 2013 were immaterial.⁴

That assessment did not hold. The Audit Committee’s investigation kept widening, CEO Mark Frissora stepped down during the review, and the stock price dropped as investors lost confidence in the reported numbers. The definitive restatement was filed on July 16, 2015, with audited corrected figures for 2012 and 2013, audited 2014 results, and unaudited restated 2011 data.⁵

The SEC Penalty Against Hertz

The SEC charged Hertz Global Holdings and its subsidiary The Hertz Corporation with fraud and reporting violations, citing antifraud provisions of the Securities Act of 1933 and reporting, recordkeeping, and internal controls provisions of the Securities Exchange Act of 1934. On December 31, 2018, Hertz settled by agreeing to pay a $16 million civil penalty and to cease and desist from further violations. The company neither admitted nor denied the SEC’s findings.⁶

Charges Against Former Executives

The SEC charged former CEO Mark Frissora with aiding and abetting the company’s filing of inaccurate reports. The agency also invoked Section 304 of the Sarbanes-Oxley Act, which requires a CEO or CFO to return bonus and incentive-based compensation received in the twelve months after the filing of financial statements that are later restated because of misconduct. Frissora settled, agreeing to repay Hertz nearly $2 million in incentive-based compensation and to pay a separate $200,000 civil penalty.²⁷

Former corporate controller Jatindar Kapur was charged with antifraud violations and aiding the company’s reporting failures. He settled by paying $18,611 in disgorgement, roughly $4,000 in prejudgment interest, and a $75,000 penalty, and agreed to a suspension from appearing or practicing before the SEC as an accountant, with the option to apply for reinstatement after two years.³

Shareholder Suit and What Came After

Shareholders filed a federal securities class action alleging they had bought Hertz stock at prices inflated by the inaccurate reporting. That lawsuit ultimately settled with no monetary payment to class members. Hertz separately sued former members of its management team to recover incentive payments and damages tied to the restatement.

Hertz filed for bankruptcy in May 2020, but the trigger was the collapse of travel demand during the COVID-19 pandemic, not the accounting scandal itself. The years of internal disruption, leadership turnover, and reputational damage from the restatement left the company in a weaker position heading into that crisis.

1
Securities and Exchange Commission. Order Instituting Cease-and-Desist Proceedings – In the Matter of Hertz Global Holdings, Inc. and The Hertz Corporation
2
Securities and Exchange Commission. SEC Complaint – Securities and Exchange Commission v. Mark P. Frissora
3
U.S. Securities and Exchange Commission. SEC Charges Hertz’s Former Controller for Role in Company’s Accounting Misstatements
4
PR Newswire. Hertz to Extend Filing of First Quarter 2014 Form 10-Q
5
U.S. Securities and Exchange Commission. Hertz Completes Financial Restatement
6
U.S. Securities and Exchange Commission. SEC Charges Hertz with Inaccurate Financial Reporting and Other Failures
7
U.S. Securities and Exchange Commission. SEC Charges Hertz’s Former CEO With Aiding and Abetting