Argo settles SEC charges over failure to disclose CEO perks
Argo Group International Holdings failed to disclose more than $5.3 million worth of perks and benefits paid to its former chief executive officer over a five-year period, according to the Securities and Exchange Commission.
The US financial regulator announced yesterday that it had settled charges with the Bermudian-based re/insurer over the failure to fully disclose the value of benefits provided by the company to Mark Watson.
The SEC's order charges Argo with violating federal securities law provisions concerning proxy solicitation, reporting, books and records, and internal controls. Without admitting or denying the SEC's findings, Argo consented to the SEC's cease-and-desist order, which requires Argo to pay a $900,000 civil penalty.
The SEC's order finds that in its proxy statements for 2014 through 2018, Argo disclosed it had provided about $1.22 million in perquisites and personal benefits, chiefly retirement and financial planning benefits, to its then CEO.
The order states: “However, these same definitive proxy statements failed to disclose over $5.3 million worth of additional perquisites and personal benefits provided to Watson, thereby understating the perquisites and personal benefits portion of Watson's compensation by an annual average of over $1 million, or 400 per cent.
“Items that Argo paid for on Watson's behalf, but did not disclose, include, but are not limited to, expenses associated with personal use of corporate aircraft, rent and other housing costs, personal use of corporate automobiles, helicopter trips, other personal travel costs, use of a car service by family members, club and concierge service memberships, tickets and transportation to sporting, fashion or other entertainment events, personal services provided by Argo employees, and watercraft-related costs.”
The CEO resigned from that position in November 2019 and his resignation from the board of directors became effective on December 30, 2019.
Kelly Gibson, director of the SEC's Philadelphia Regional Office, said: “Even after being made aware of potential inaccuracies in its disclosures related to executive compensation, Argo did not accurately and adequately inform shareholders about the perks and benefits it provided its highest-ranking executive over a five-year period.
“We continue to focus on whether companies are fully disclosing compensation paid to their top executives and have appropriate internal controls in place to ensure that shareholders receive information to which they are entitled.”
The order stated that from 2014 to 2018 that Argo had “incorrectly recorded payments for the benefit of, and reimbursements to, Watson as business expenses, and not compensation. As a result, its books, records, and accounts did not, in reasonable detail, accurately and fairly reflect its disposition of assets.” Argo had “failed to devise and maintain internal accounting controls relating to payments for the benefit of, and reimbursements to, Watson that were sufficient to provide reasonable assurances that transactions were recorded as necessary to maintain the accountability of assets,” the order added.
“These failures included, for instance, a practice of providing expense reimbursements to Watson without requiring an adequate explanation of a business purpose for the expense, allowing Watson to approve his own expense reimbursements, and a lack of a mechanism to ensure Watson paid for personal usage of corporate aircraft.”
In February 2019, shareholder Voce Capital Management, which at the time owned a 5.8 per cent stake in the insurer, issued a press release criticising Argo's “shockingly high” and “shockingly inappropriate” corporate expenses. Voce called for changes to the board of directors.
Argo conducted an internal investigation, which was launched in June 2019 after receipt of a subpoena from the SEC staff, the order stated.
“Thereafter, Watson resigned and agreed to reimburse Argo for certain perquisites and/or personal expenses, subject to an arbitration process as to any items Watson disputes,” the order added.
The SEC said it took into account Argo's remedial actions when agreeing to the settlement, which included:
• Engagement of outside counsel and an independent forensic accounting firm to conduct an investigation
• Engagement of a third-party consultant to assist in reviewing and revising its executive compensation process, policies and controls
• Replacing its CEO and entering into an agreement to obtain repayments from him
• Implementing new internal controls and compliance policies and procedures concerning perquisites, aircraft usage, expense reimbursement, travel, and charitable contributions
• Making changes to its board of directors
• Sharing the results of its internal investigation with SEC staff.