A gas exploration company and its former CEO settled SEC charges for failing to disclose certain related person transactions and perquisites as part of the CEO's compensation.
In separate Orders for the company and the CEO, the SEC found that the former CEO (i) led the company to incur nearly $650,000 in costs from his use of chartered aircraft for travel not directly related to his responsibilities as CEO and (ii) used a company credit card for personal purchases for which he did not reimburse the company in a timely manner, resulting in the company extending him interest-free credit and "carrying a related person account receivable." The SEC also found that the company paid the former CEO's son approximately $152,000 for landscaping work, which is over the disclosure threshold for related person transactions, although the former CEO directed his son's company to return approximately $32,000 to the company and, instead, personally paid his son's company the amount returned in order to avoid disclosure.
According to one Order, the former CEO's failure to provide the company with sufficient information to detect these perquisites and related person transactions resulted in material statements in the company's annual reports and definitive proxy statements. Additionally, the SEC found that the company's insufficient internal accounting controls led to its failure to correctly record in its books and records the former CEO's perquisites.
The SEC determined that the former CEO violated Sections 17(a)(3) and 14(a) of the Exchange Act and SEA Rules 13b2-1 ("Falsification of accounting records"), 14a-3 ("Information to be furnished to security holders") and 14a-9 ("False or misleading statements"), which led the company to violate SEA Sections 13(a) and 13(b)(2)(A) and SEA Rules 12b-20 ("Additional information") and 13a-1 ("Requirements of annual reports"). The SEC also determined that the company independently violated SEA Sections 13(b)(2)(B) and 14(a).
To settle the charges, the company and the former CEO agreed to cease and desist from future violations, and the CEO agreed to pay an $88,248 civil penalty.
Commentary Kyle DeYoung
This case is another example of the importance the SEC places on cooperation. The SEC credited the company with "significant" cooperation and remedial efforts, which included replacing key personnel and revamping its policies and procedures. In recognition of the company's efforts, the SEC did not impose any civil money penalty on the company - a result that would not happened otherwise.
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