SEC charges Compass Minerals with disclosure violations resulting from “deficient disclosure process”
Toward the end of last month, the SEC announced settled charges against Compass Minerals International, Inc., for alleged disclosure violations that were “the consequence of a deficient disclosure process.” In the Order, the SEC alleged that Compass misrepresented the impact of a technology upgrade at its Goderich mine—the world’s largest underground salt mine—which the company had claimed would lead to cost savings, but actually led to increased costs and below-expectation results. Central to the case, however, was the purported failure of the company’s disclosure controls that resulted in the misleading statements: “statements to investors were not reviewed by personnel who were sufficiently knowledgeable about both Compass’s operations and its disclosure obligations.” The company was also charged with failing to disclose the potential financial risks arising out of the company’s contamination of a river in Brazil with excessive discharges of mercury, a failure the SEC also attributed to inadequate disclosure controls. According to Melissa Hodgman, Associate Director of the Division of Enforcement, “[w]hat companies say to investors must be consistent with what they know. Yet Compass repeatedly made public statements that did not jibe with the facts on—or under—the ground at Goderich….By misleading investors about mining costs in Canada and failing to analyze the potential financial consequences of its environmental contamination in Brazil, Compass fell far short of what the federal securities laws require.” Compass agreed to pay $12 million to settle the charges.
SEC charges company for alleged misstatements regarding director independence and disclosure control failures
As we head into a new proxy season, this SEC order involving settled charges against Leaf Group Ltd. might be a good case to keep in mind. In this case, the SEC charged that Leaf did not adequately identify and analyze—and did not maintain effective disclosure controls and procedures to identify and analyze— whether some of its directors were “independent” and whether there were “interlocking relationships between its directors and executive officers,” which led to “material misstatements and omissions in certain of its public filings,” including its proxy statement. As part of the settlement, Leaf was ordered to pay a civil penalty of $325,000. The company’s alleged failings as outlined in the order might serve to augment your seasonal checklist for examining issues of director independence.