All the focus on COVID-19 disclosures notwithstanding, the SEC has not taken its collective eyes off the basics. This Order discusses settled charges against Argo Group International Holdings, Ltd. related to its failure to disclose in its proxy statements—for five years—millions in personal expenses and perks paid to its CEO, such as personal use of corporate aircraft and cars, “personal services provided by Argo employees and watercraft-related costs.” Not to mention that the CEO was able to approve his own expense reports. According to the press release, Enforcement continues “to focus on whether companies are fully disclosing compensation paid to their top executives and have appropriate internal controls in place to ensure that shareholders receive information to which they are entitled.”
Argo is an international underwriter of specialty insurance and reinsurance products, organized under the laws of Bermuda with significant operations in the United States. In proxy statements filed in 2015 through 2019, Argo disclosed perks paid to its CEO aggregating approximately $1.22 million, consisting primarily of 401(k) and retirement contributions, the imputed value of insurance coverage, SERPs, housing and home leave allowances, medical premiums and financial planning services. Omitted from the disclosure were over $5.3 million worth of additional perks and personal benefits provided to the CEO, including expenses associated with personal use of corporate aircraft and cars, rent and other housing costs, helicopter trips and other personal travel costs, use of a car service by family members, club and concierge service memberships, tickets and transportation to sporting, fashion or other entertainment events, personal services provided by Argo employees and watercraft-related costs. As alleged by the SEC, these perks were “incorrectly recorded” in the company’s books and records as business expenses, not compensation.
Even after a shareholder issued a press release in 2019 alleging misuse of Argo assets by the CEO, including undisclosed personal use of corporate aircraft, the company still filed a proxy statement that failed to disclose over $1 million worth of perks, including over $230,000 related to the CEO’s personal use of corporate aircraft.
Argo was alleged to have had ineffective internal controls, including providing expense reimbursements to the CEO without requiring an adequate explanation of the business purpose for the expense, allowing the CEO to approve his own expense reimbursements, and the absence of any mechanism to ensure payment by the CEO for personal usage of corporate aircraft.
The company was charged with violations of the reporting and proxy solicitation provisions of the Exchange Act, as well as the rules related to books and records and internal controls. Among other things, the company was required to pay $900,000, to cease and desist from this conduct, and to produce documents and make witnesses available. The SEC took into account the company’s cooperation with SEC, including Argo’s sharing of the results of its internal investigation with the SEC. In addition, the SEC considered a long litany of remedial acts, including engagement of outside counsel, an independent forensic accounting firm and a third-party consultant, replacing its CEO and entering into an agreement to obtain repayment from the former CEO, implementing new internal controls and compliance policies and procedures concerning perks, airplane usage, expense reimbursement, travel and charitable contributions, and changing the composition of the Board.