June 8, 2020

Perks Disclosure SEC Enforcement Action

It’s been a couple of years since we’ve seen a SEC Enforcement action related to improper disclosure of perks but last week, the SEC settled a case.  In this most recent case against Argo Group International Holdings, the SEC’s press release says the company failed to disclose over $5.3 million that it paid in connection to perks for the company’s then CEO.  Here’s an excerpt:

The SEC’s order finds that in its proxy statements for 2014 through 2018, Argo disclosed that it had provided a total of approximately $1.2 million in perquisites and personal benefits, chiefly retirement and financial planning benefits, to its then CEO.  According to the order, Argo failed to disclose over $5.3 million it had paid on the CEO’s behalf, including in filings for 2018 after a shareholder issued a press release alleging undisclosed perks to the CEO.  The order finds that the perks Argo paid for, but did not disclose, included personal use of corporate aircraft, helicopter trips and other personal travel, housing costs, transportation for family members, personal services, club memberships, and tickets and transportation to entertainment events.  The order finds that, as a result, Argo understated perks and personal benefits paid to the CEO over this period by more than $1 million per year, or 400%.

The SEC’s order provides more color about the company’s disclosure issues, which sound like in large part stemmed from failure to maintain internal accounting controls.  The company settled the action without admitting or denying the SEC’s findings and it will pay a $900,000 civil penalty.  Based on information in the SEC’s order, the company took quite a few remedial actions that likely didn’t come cheap while also leading to quite a bit of upheaval at the company.

To help guard against this type of action, Lynn, Borges & Romanek’s “Executive Compensation Disclosure Treatise” has a 97-page chapter on Perks & Other Personal Benefits – it’s also available on

We also have a panel about perk disclosures as part of our “Proxy Disclosure” conference – which is coming up in September via Nationwide Video Webcast.  This is our big annual conference and it will cover all sorts of disclosure issues.  Register now to receive the special Early Bird Rate!

First PPP-Related Securities Class Action

The Paycheck Protection Program has created plenty of blogging material and last week, Kevin LaCroix’s blog post reported on what is believed to be the first PPP-related securities class action lawsuit.  What’s somewhat surprising about this case, as the blog notes, is that it involves a lender.  Most would’ve thought these PPP D&O claims would involve PPP borrowers because as we’ve blogged, there has been concern about good faith need certifications PPP borrowers had to make.

The blog provides thoughts around why the lender may be targeted and says while a bank might not seem like the most obvious target to be hit with a coronavirus-related securities suit, there is this thing about banks: They always seem to be getting drawn into the latest securities litigation wave. They were certainly in the center of things in the litigation wave that followed in the wake of the global financial crisis. To be sure, that does not mean that other banks that participated on the PPP program necessarily are at greater risk of involvement in securities class action litigation. Rather, it is simply an observation that the plaintiffs’ lawyers seem ready to try to bring the banks into the litigation fray from the moment the starting gun sounds.

Technical Snafu Sends Double PPP Funds

By now, you’re probably thinking you’ve heard just about everything about the SBA’s Payment Protection Program.  But, the PPP is a blogger’s dream as the stories keep coming. The latest is this Reuters story that says a technical snafu caused many small business owners to receive their loan amounts twice – potentially to the tune of over $100 million.  Many of the duplicate loans have been identified and repaid, although not all.

Another story from NBC News explains more about how the double-payment snafu came about:

The issue stems from the hectic early weeks of the program, when funding ran out quickly and borrowers were not hearing back from their banks, industry sources told NBC News. Although businesses must certify they are only applying for one loan, some small-business owners applied at more than one bank to ensure they could secure a financial lifeline amid the economic shutdown.  After funding ran out, some banks also suggested that customers who still had pending applications in their queue should apply with another bank in the meantime.

We’ll see how this all plays out, but the government will only guarantee one loan per borrower.  The financial institutions obviously want to quickly address the problem and NBC News says borrowers expecting loan forgiveness are reaching out to repay the extra funds so they’re only responsible for one loan.  For anyone not already returning any double PPP loan amounts, obviously it’d be good to do so – and maybe also take a gander at John’s “PPP Loan Enforcement: En Guarde!” blog.

– Lynn Jokela