Recent SEC Enforcement Actions Highlight Importance of D&O Questionnaires

Recent SEC Enforcement Actions Highlight Importance of D&O Questionnaires

Blog Keeping Current: Disclosure and Governance Developments

A number of recent SEC enforcement actions alleging failure to disclose perquisites, summarized below, highlight the importance of the questionnaires routinely used in connection with the preparation of SEC reports and proxy statements, including the care taken by directors and officers in completing, and by companies in reviewing, those D&O Questionnaires.

In light of these enforcement actions, and in advance of the next circulation of D&O Questionnaires, companies should review the substance of their questionnaires and confirm that there is an adequate process in place to review returned questionnaires. Additionally, officers and directors should carefully review the information provided in response to D&O Questionnaires for completeness and proactively reach out to the appropriate company contact with any and all questions about responding to their questionnaire. To the extent company personnel assist with completion of the D&O Questionnaires, these actions make clear that directors and officers must personally review information provided by company personnel for accuracy and make changes as appropriate.

The following recent SEC enforcement actions underscore the importance of the D&O Questionnaire and its review process:

June 2023 – The SEC settled charges against Stanley Black & Decker Inc., for allegedly failing to disclose perquisites provided to executives, and a former Stanley Black & Decker executive, for his role in the company’s alleged failure to disclose perquisites and personal benefits provided to him. In charging the former executive, the SEC focused on Stanley Black & Decker’s D&O Questionnaires and claimed that the former executive failed to disclose certain of his perquisites and benefits in response to questions relating to compensation included in the questionnaire. These undisclosed perquisites and benefits were comprised of chauffeur services, other travel items, meals, apparel, car repair services, approved use of the corporate aircraft, personal services provided to the former executive by Stanley Black & Decker employees, and certain gifts and products. The SEC also noted the former executive’s receipt of various drafts of the company’s proxy statement to highlight that he had the opportunity to correct any misstatements made in his D&O Questionnaire but failed to do so. Stanley Black & Decker’s remedial measures, which included an internal investigation, cooperation with the SEC’s investigation and disclosure in its 10-K, were sufficient to prevent monetary penalties against the company. However, the former executive was ordered to pay $75,000. In each of the settlements in this action and the actions discussed below, the company and the former executive neither admitted nor denied the SEC’s allegations.

March 2023 – The SEC settled charges against The Greenbrier Companies, Inc., for allegedly failing to disclose perquisites given to its named executive officers and certain information regarding related party transactions, and against its founder and former CEO for his role in the company’s alleged failure to disclose such information. In the SEC’s Orders against both The Greenbrier Companies and the former CEO, the SEC focused on the D&O Questionnaires that the former CEO completed from 2017 to 2021 and, in each such questionnaire, the former CEO’s alleged (a) failure to disclose some of his perquisites, including travel expenses for his spouse and personal security expenses and (b) failure to disclose the dollar amount of his related party transactions. In accepting the settlement offer with The Greenbrier Companies, the SEC considered its training of named executive officers and employees on the D&O Questionnaires as a remedial measure. However, despite its remedial measures, The Greenbrier Companies was ordered to pay $1,000,000 and the former CEO was ordered to pay $100,000.

November 2021 – The SEC settled charges against ProPetro Holding Corp. and its co-founder and former CEO for allegedly failing to disclose perquisites and stock pledges, and for the former CEO’s role in ProPetro’s alleged failure to disclose such information. In the Order, the SEC claims that the former CEO’s D&O Questionnaires from 2017 and 2019 contained material misstatements or omissions and that he failed to complete a D&O Questionnaire at all in 2018. Notably, the SEC made a point of stating that ProPetro did not have a formal written policy for the completion of its D&O Questionnaires. As in the settlement with The Greenbrier Companies, the SEC listed ProPetro’s enhanced D&O Questionnaire process as a remedial measure. While ProPetro’s remedial measures were sufficient to avoid a monetary penalty, the former CEO was ordered to pay $195,046.

February 2021 – The SEC settled charges against Gulfport Energy Corporation, for allegedly failing to disclose certain perquisites and related party transactions, and its former CEO for his role in the company’s alleged failure to disclose such information. In the Orders, the SEC highlighted its claim that the former CEO failed to disclose in his D&O Questionnaire (a) certain of his perquisites, including his use of the corporate aircraft and his use of the company credit card for personal purchases, and (b) information regarding his related party transactions. Due to Gulfport Energy’s extensive remedial measures, including an internal investigation, disclosure in its 10-Q, overhaul of its management team and risk policies, and enhancement of its D&O Questionnaires and review processes, the SEC did not impose a monetary penalty against the company. However, the former CEO was ordered to pay $88,248.

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