SEC Settlement with Company, Ex-CEO Signals Continued Focus on Executive Perks
The recent SEC settlement with Gulfport Energy and its former CEO suggests a hard line approach to executive perks and compensation disclosures, even where expenses relate to business activities.
On February 24, 2021, the Securities and Exchange Commission settled claims against Oklahoma-based Gulfport Energy and its former CEO, Michael G. Moore, for alleged failure to disclose certain perks provided to Moore, including personal use of a company provided aircraft and a company credit card. Leveling an $88,000 fine against Moore, the SEC concluded that Moore’s use of the company provided aircraft, including to attend events sponsored by a Gulfport supplier, and his benefit from interest-free credit under the company credit card, did not integrally and directly relate to his duties as CEO.
How Is this Settlement Significant?
Though attendance at certain events may be thought of as routine to a CEO’s role in maintaining industry relationships, the SEC treated Moore’s attendance at supplier-hosted wine tasting and poker events as "not integrally and directly related to" his duties. The settlement suggests the SEC may draw a hard line regarding certain expenditures even where an executive is engaging in a business-related, but non-essential, function on behalf of the company. This is also the fourth settlement in as many years regarding undisclosed executive compensation (the third involving personal use of a company provided aircraft) confirming this is not a one-off issue and that the SEC will continue to probe undisclosed perks.
How Should Companies Respond?
The SEC closely scrutinized and held Gulfport accountable to its own internal policies regarding personal use of company assets and also found that Gulfport had insufficient internal controls for evaluating potential perks. This is a reminder for companies to closely evaluate existing policies on perks and personal use, and verify that such policies are being closely adhered to, in both letter and spirit. Companies should also tighten internal procedures for eliciting executive perk details and evaluating executive travel and expenditures.
Encouragingly, though the order against Gulfport found reporting, books and records, and internal controls violations, the SEC declined to impose a civil penalty against Gulfport due to its extensive remedial and cooperative efforts. Companies should take this as a signal to proactively evaluate policies and controls in this area and preemptively address any vulnerabilities.
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