SEC Brings Charges for Failure to Disclose Perks
The Securities and Exchange Commission announced settled charges against an Oklahoma-based gas exploration and production company, Gulfport Energy Corporation, and its former CEO, Michael G. Moore, for failing to properly disclose as compensation certain perks provided to Moore, as well as failing to disclose certain related person transactions.
SEC enforcement actions for failure to disclose perks always attract a lot of attention. Almost never do these cases rest on fine lines of interpretation with people trying to do the right thing. Most of the cases result from egregious actions and blatant disregard of the rules. According to the SEC’s description, this appears to be one of those cases. According to the SEC:
From the time he became CEO in 2014 until his resignation in October 2018 (the “Relevant Period”), Moore: (1) caused Gulfport to incur approximately $650,000 worth of charges by traveling on chartered aircraft for reasons that were not integrally and directly related to the performance of his CEO duties; and (2) used a Gulfport corporate credit card for personal expenses that he did not repay timely, which resulted in Gulfport extending Moore interest-free credit and carrying a related person account receivable. Additionally, during 2015, Gulfport paid Moore’s son’s company approximately $152,000 to provide landscaping services.
The SEC order finds that during the Relevant Period, Gulfport did not have any internal policies or procedures specifically governing the use of chartered aircraft. Gulfport’s Code of Business Conduct and Ethics, however, required that “[a]ll Company assets should be used for legitimate business purposes only.” Also, by 2016, Gulfport issued an Employee Handbook, approved and adopted by Moore, that provided that company resources should not be used for personal expenses.
From 2014 to 2018, Moore caused Gulfport to pay for his travel by chartered aircraft in some instances where his travel was not integrally and directly related to the performance of his duties as CEO, costing Gulfport approximately $650,000. For example, Moore used chartered aircraft for himself and his wife to attend two events sponsored by a Gulfport supplier: a wine tasting weekend in Napa, California and a poker tournament in Las Vegas, Nevada. Neither one of these events was integrally and directly related to Moore’s duties as Gulfport’s CEO.
As a result of the lack of policies and procedures discussed above, Gulfport did not review Moore’s chartered aircraft usage to determine if it involved perquisites or personal expenses. While Gulfport was aware of the chartered aircraft usage through its process of purchasing and tracking the charter services, no one at Gulfport reviewed the individual flights to determine the flight purpose.
Moore also did not provide information about his flights to Gulfport during the annual process to identify perquisites and other personal benefits that might require disclosure. Each year, in connection with the preparation of the proxy statement, Moore received a document titled “Questionnaire for Directors, Officers and Certain Other Persons” (the “D&O Questionnaire”). The D&O Questionnaire required that perquisites and personal benefits be disclosed, and contained detailed examples and explanations concerning benefits that may require disclosure, including “[p]ersonal use of Company provided aircraft.” Further, the D&O Questionnaire highlighted that “[i]f you have any doubts about whether to include an item of information, please resolve those doubts in favor of disclosure.”
In addition, Gulfport hired Moore’s son’s company to perform landscaping work for Gulfport in at least 2014, 2015, and 2016. From January 1, 2015, through December 1, 2015, Gulfport paid Moore’s son’s company approximately $152,000 for this work.
In December 2015, Moore directed his son’s company to repay Gulfport approximately $32,000, thereby bringing the amount paid to the landscaping company below $120,000, the threshold for related person transaction disclosure. Moore then personally paid his son’s company the additional $32,000 to make up for the shortfall created by the repayment.
Moore’s son’s company had in fact provided services and materials valued at approximately $152,000 in 2015. In Moore’s D&O Questionnaire for the year ending 2015, he failed to identify the payments to his son’s company, even though the information was required to be disclosed.
Gulfport and Moore did not admit or deny the SEC’s findings.
Contact Steve Quinlivan for more information.