Tag: Reg S-K Item 404
SEC charges Skechers with failure to disclose related-person transactions involving family members
Recently, the SEC announced settled charges against Skechers U.S.A., Inc., a public footwear company traded on the NYSE, for allegedly failing to disclose payments to executives’ immediate family members and loans to executives and directors that represented unreimbursed personal expenses in excess of the disclosure threshold. In the settlement, Skechers agreed to pay a $1.25 million civil penalty. According to an SEC Associate Director of Enforcement, “[d]isclosure of related person transactions provides important information for investors to evaluate the overall relationship between a company and its officers and directors….Today’s action is a reminder that companies should take appropriate measures to ensure proper disclosure of such transactions.” This case serves as a good reminder, especially during proxy season, about the need to disclose, under Reg S-K Item 404, related-person transactions that involve significant unreimbursed personal expenses or family members who may be performing work for the company. Companies may want to beef up their due diligence processes and disclosure controls around these types of transactions.
SEC Enforcement zeroes in on disclosure of related-person transactions
Two recent settled actions suggest that SEC Enforcement seems to be scrutinizing disclosures about related-person transactions—or rather, the absence thereof. The first, announced last week against Maximus, Inc., looks like a flub by the company in failing to disclose the employment of two immediate family members of a new executive. Maximus was required to pay a civil penalty of $500,000. The second settled action, against Lyft, involved the failure by the company to disclose the role of, and related compensation received by, a board member in architecting the sale by a shareholder of approximately $424 million worth of Lyft shares prior to the company’s IPO. According to the Order, “Lyft, which approved the sale and secured a number of terms in the contract, was a participant in the transaction.” Lyft was required to pay a civil penalty of $10 million. According to an SEC Associate Regional Director, the “federal securities laws required Lyft to disclose that a director profited from a transaction in which Lyft itself was a participant….We remain vigilant in ensuring investors are not deprived of critical information about transactions occurring close to a company’s initial public offering.” With Enforcement’s spotlight apparently now on disclosure of related-person transactions, companies may want to beef up their due diligence processes and disclosure controls around these types of transactions.
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