CEO Settles SEC Charges for Aiding and Abetting Disclosure Failures

The former CEO of an SEC-registered car-rental company settled SEC charges for aiding and abetting the company in materially overstating its pre-tax income, failing to disclose operational changes with a material financial impact, and reaffirming earnings guidance known to be inaccurate.

In a complaint filed in the U.S. District Court of New Jersey, the SEC alleged that, during 2013, the company faced financial and operational difficulties. The SEC alleged that the CEO "pressed" employees to figure out ways to close the gaps, resulting in their use of inappropriate methods of accounting and, ultimately, material inaccuracies in the company's financial reports. Additionally, the SEC claimed that the CEO extended the company's planned holding periods of cars in its rental fleet to lower the company's short-term expenses, but did not adequately disclose this or the risks associated with holding the cars longer. The SEC also alleged that, despite knowing the company's earnings would fall below its prior earnings guidance for 2013, the CEO approved the company's reaffirmation of the outdated guidance.

After the CEO left the company in 2015, the company restated its financial outcomes for 2013 and identified numerous material accounting errors that resulted in the company overstating its pre-tax income by $235 million. Despite the company's restatement, the CEO did not reimburse the company for any of the incentive-based compensation he received.

To settle the charges, the CEO consented to (i) be permanently enjoined from engaging in any further violations, (ii) reimburse the company $1,982,654 of his incentive-based compensation and (iii) a $200,000 civil penalty. The settlement is subject to court approval.

The SEC previously brought a settled action against the car-rental company in December 2018.