TheCorporateCounsel.net

Yesterday, the SEC announced a settled enforcement action against Charter Communications arising out of what the agency alleges was an “unauthorized” stock buyback program.  This excerpt from the SEC’s press release summarizes its allegations:

According to the SEC’s order, Charter’s board authorized company personnel to conduct certain buybacks using trading plans that conform to SEC Rule 10b5-1. Rule 10b5-1 offers protection to companies and individuals from insider trading liability as long as they meet the conditions of the rule, including a requirement that they not retain the ability to change the planned purchases or sales after they adopt the trading plan.

However, the SEC’s order finds that, from 2017 to 2021, Charter used plans that included “accordion” provisions, which company personnel described as giving Charter flexibility, that allowed Charter to change the total dollar amounts available to buy back stock and to change the timing of buybacks after the plans took effect. According to the SEC’s order, because Charter’s trading plans did not meet the conditions of Rule 10b5-1, the company’s buybacks did not comport with the board’s authorizations. The SEC’s order finds that Charter included accordion provisions in nine separate trading plans over the four-year period.

The SEC’s order found that the company’s violated the internal controls requirements of Section 13(b)(2)(B) of the Exchange Act. Without admitting or denying those findings, Charter agreed to cease-and-desist from further violations of Section 13(b)(2)(B) and pay a civil penalty of $25 million.

– John Jenkins