SEC Settles Charges Against Former Company Director for Proxy Disclosure Rule Violations Regarding Undisclosed Friendship with Executive
The SEC announced that it settled charges against a former independent director of a publicly traded consumer goods company for failing to disclose a personal friendship with a senior company executive, which led to false representations in the company's proxy statements and compromised the former director's status as an independent director. The settlement is subject to court approval.
The SEC's Complaint, filed in the US District Court for the Southern District of New York, detailed that the individual, a former CEO and non-executive chair of the company's board of directors, developed a close personal friendship with a senior executive, frequently vacationing together and paying for the executive's expenses over a period of years. The individual failed to disclose the relationship to the company's board of directors during annual director independence assessments. The SEC also alleged that the individual instructed the senior executive to keep the relationship secret and provided confidential information about the company's CEO succession plans to the senior executive.
The SEC found that the individual allowed the company to file proxy statements in 2021 and 2022 that falsely represented him as an independent director, despite his personal friendship with the senior executive. Additionally, the SEC determined that the individual's involvement in the CEO succession process, while concealing this relationship, further undermined the integrity of the board's decisions.
As a result of the individual's conduct, the SEC charged the individual with violating SEA Section 14(a) ("Proxies") and Rule 14a-9 ("False or misleading statements").
The SEC reported that the individual agreed to (i) be permanently enjoined from further violations of the SEA's proxy disclosure provisions alleged in the Complaint; (ii) pay a civil penalty of $175,000; and (iii) a five-year officer-and-director bar.