January 15, 2025
Related Parties: Timely Reminder on Family Member Employees!
Over the past couple of years, several companies have paid fines to the SEC to settle claims that they had made deficient disclosure about related party transactions. With this settlement from late last week, we can add another one to the list. It’s a timely reminder for everyone working on 10-Ks and proxies! The SEC’s order alleges:
On March 8, 2021, Shift4 filed a Form 10-K for its fiscal year ended December 31, 2020. The Form 10-K indicated that the related person transaction information required by Item 404 was incorporated by reference to Shift4’s forthcoming proxy statement.
On April 27, 2021, Shift4 filed a definitive proxy statement, which included the election of directors and failed to disclose that a sibling of an executive officer and director (as well as a child of a different director), in 2020, had received approximately $1.1 million in compensation while serving as a nonexecutive employee of the company.
In addition, the proxy statement failed to disclose that a sibling of an executive officer and director (as well as a stepchild of a different director), in 2020, received $281,609 from Shift4 as payment of residual commissions while acting as an independent sales agent not employed by the company.
Similar omissions happened the following year, and the year after that. Because both the 10-K and the proxy were involved, the SEC asserted violations of Exchange Act Section 13(a), Rule 13a-1, Section 14(a) and Rule 14a-3.
The company agreed to pay $750,000 to settle the claim. The SEC said it considered the company’s prompt remedial efforts in assessing that penalty – which included making disclosures and improvements to policies and procedures. Check out this blog from Meredith about how to improve your controls for family member employees before you end up with an RPT disclosure violation. We also had a great webcast on this topic last year – here’s the transcript. And remember that smaller reporting companies have a different lookback period and may have a different disclosure threshold.
– Liz Dunshee