SEC Enforcement Action Highlights Importance of Disclosing Executive Perks and Related Person Transactions

April 2, 2021

On February 24, 2021, the SEC announced settled charges against a gas exploration and production company and its former CEO for failing to properly disclose approximately $650,000 worth of perks, as well as for failing to disclose certain related person transactions. While the former CEO agreed to pay a civil penalty in the amount of $88,428, the company escaped without any penalty due to its prompt remedial action and cooperation with the SEC’s investigation.

The SEC’s separate orders against the company and the former CEO find that the undisclosed perks included the former CEO’s use of the company’s chartered aircraft for personal travel and the former CEO’s use of a company credit card for personal expenses that he did not repay on a timely basis, which resulted in the company extending him interest-free credit. The orders also find that the company failed to disclose that it paid the former CEO’s son’s landscaping company approximately $152,000 for its services.

Notably, the SEC’s orders find that the former CEO caused the company’s violations by failing to disclose any of these perks or related person transactions on his annual D&Q questionnaire, even though the questionnaire instructed him to resolve any doubts about whether or not to include an item in favor of disclosure.

The SEC’s order as to the company notes its “significant cooperation with the SEC’s investigation and its remedial efforts, which included replacing key personnel [and enhancing its] policies and procedures … and that this cooperation and remediation was taken into account in the determination to accept the company’s settlement offer.”

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