Earlier this week, the SEC announced settled charges against Maximus, Inc. “for failing to make required disclosures that it employed the siblings of one of its executive officers” and that Maximus agreed to pay a civil penalty of $500,000. According to the order, in late 2019, the company’s board promoted a business segment leader and longtime employee to be an executive officer of the company. Maximus’s annual reports and proxy statements for 2019 through 2021 disclosed that the company had no related person transactions even though the newly-appointed officer’s two siblings were also longtime company employees and both received annual compensation of greater than $120,000. The order includes the following reminder:
Disclosure of related person transactions “involving the employment of immediate family members” is required “when the threshold for disclosure has been met and the immediate family member has or will have a direct or indirect material interest.” Information required to be disclosed concerning any such related person transaction includes the name of the related person, the basis on which the person is a related person, the related person’s interest in the transaction, and the approximate dollar amount of the related person’s interest in the transaction.
Our “Related Party Transactions Disclosure Handbook” has tons of practical guidance on this topic, including how to calculate the amount paid to the family member employee, and reminds companies to thoroughly vet contextual disclosure, such as statements that the “individual received compensation ‘commensurate with that provided to other employees in similar positions.’”
– Meredith Ervine