TheCorporateCounsel.net

Earlier this month, SEC Enforcement continued its series of “related party transaction” cases, by announcing a settlement with a footwear & fashion company that defined my ’90s style. Here’s an excerpt:

According to the SEC’s order, from 2019 through 2022, Skechers did not comply with related person transaction disclosure requirements when it failed to disclose its employment of two relatives of its executives and did not disclose a consulting relationship involving a person who shared a household with one of its executives. Furthermore, according to the SEC’s order, for multiple years, Skechers failed to disclose that two of its executives owed more than $120,000 to the company for personal expenses that had been paid for by Skechers but not yet reimbursed by the executives.

The alleged violations resulted from omitting RPT disclosure from proxy statements, which were incorporated into the company’s reports on Form 10-K. The difficulty with RPT disclosures is that not only do you need to accurately describe the relationships you know about, but you also need to put controls in place to learn about the relationships in the first place. Sometimes it can come as a surprise to directors and officers that the compensation arrangements of their gainfully employed relatives must be disclosed. The disclosure consequences of expense reimbursement timing also may not be front-of-mind.

Reading between the lines of this 5-page order, which notes the company’s cooperation and remedial policies & procedures (including training), and the relatively light $1.25 million penalty, these items may have fallen between the cracks despite overall good policies and no other skeletons in the closet. The company agreed to the order and penalty without admitting or denying the findings.

Not every company is so “lucky” when Enforcement comes knocking. As you finalize your proxy statement, this case gives you the opportunity to revisit any nagging doubts about your RPT disclosures. You can get practical pointers about how to go about doing that from the transcript of our December webcast, “Related Party Transactions: Refresher & Lessons Learned from Enforcement Focus.”

– Liz Dunshee