Stinson Leonard Street Dodd Frank

MAKING SENSE OF DODD-FRANK

The Dodd-Frank Act has broad and deep implications that will touch every corner of financial services and multiple other industries. This site, developed and maintained by attorneys at Stinson Leonard Street, is dedicated to making sense of this complex legislation and helping businesses understand how it will affect them specifically. Our Bloggers »

Dodd-Frank

SEC Targets Perqs in Another Enforcement Action

by   |   July 4, 2018

The SEC has targeted disclosure of executive perquisites in another settled enforcement action.  According to the SEC, the issuer did not follow the Commission’s standard regarding disclosure of perquisites, which provides that:

  • An item is not a perquisite or personal benefit if it is integrally and directly related to the performance of the executive’s duties.
  • Otherwise an item is a perquisite or personal benefit if it confers a direct or indirect benefit that has a personal aspect without regard to whether it may be provided for some business reason or for the convenience of the company, unless it is generally available on a nondiscriminatory basis to all employees.

Instead, the SEC stated the issuer incorrectly applied a standard whereby a business purpose related to the executive’s job was sufficient to determine that a benefit would not be a perquisite that required disclosure.  As a result, the issuer did not disclose personal use of corporate aircraft and other expenses.

The SEC alleged the issuer did not adequately train employees in key roles, including those tasked with drafting the CD&A section of the proxy statement and compiling the executive compensation tables, to ensure that the proper standard was applied for perquisites disclosure.  The SEC also alleged the issuer had inadequate processes and procedures to ensure proper reporting of perquisites. The issuer’s personnel compiled the executive compensation table from a variety of sources without ensuring that the amounts reported were consistent with the Commission’s perquisite disclosure rules.

The issuer agreed to pay a civil money penalty in the amount of $1,750,000.  Among other things, the issuer agreed to retain at its own expense an independent consultant, not unacceptable to the staff of the Commission, for a period of one year, to conduct a review of the issuer’s policies, procedures, controls, and training relating to the evaluation of whether payments and other expense reimbursements should be disclosed as perquisites under the securities laws, including the Commission’s rules and standards.

The issuer did not admit or deny the SEC’s findings.